Tread Carefully Trudy
My previous post on land taxation brought on interesting dialogue in the comments section. While I concede that the anonymous poster may have valid points when it comes to economic disincentives to putting up a deck or fence, this logic does not apply in a commercial context where taxation is predicated on the earning power of the asset in question.
Using the anonymous poster’s comparison of a 40 storey building ‘unfairly’ shouldering a greater tax burden than a vacant land parcel, I asked (to no current reply just yet) whether it would be fair to redistribute the tax burden using the following scenario – if the office tower was paying $3 million in taxes and the vacant land parcel paid $100,000, would the equitable pecuniary outcome be assessing BOTH parties a tax bill of $1.55 million?
As we are mulling this over, I would like to raise a few points:
1) At the risk of belabouring this point to death – why is vacant downtown land not a problem in
2) A land value tax would INCREASE the risk profile of any new construction developments. Instead of waiting for development conditions to be right prior to development, developers would now also have to bear in mind that carrying any new land acquisitions could theoretically increase bankruptcy risk via prohibitive carrying costs. I ask readers to don their finest banker’s hats and ask themselves if they would be more or less willing to finance a project under this scenario.
3) Barriers to entry will increase. Many smaller (and LOCAL) investors are able, with a bit of stretching, to carry a property based on a lower tax burden for unimproved land. Increase the tax burden and the effect will be to increase Big Business’ presence in the market. Deep pockets are not the norm for small investors. So Mary Agnes, suburban soccer moms are not the only one who may experience a downside – surely your political leanings wouldn’t include encouraging and abetting the proliferation of multinationals into the Winnipeg real estate market.
These musings by no means indicate my support for property taxes. I still maintain that a municipal sales tax would be a far better revenue source for cities. However, if we are to be saddled with property taxes, I would much rather see them based on the current earning power of an asset than on a non-income/earning based measure such as land value. I do agree that the downtown vacant land issue must be addressed. The focus should be on making development of said lots an economically viable option.
On the residential side, I think property taxes should be based solely on the purchase price of the property plus any improvements. In order to appease our anonymous poster, I would even allow for improvements in the name of upkeep to be undertaken without additional taxes being assessed. If you bought a house 30 years ago and are now on a fixed income, you should not be subjugated to the vagaries of market movements just because everyone else is embroiled in a feeding frenzy.
Many years ago, a Turner by the name of John hitched his wagon to an anti free-trade campaign. Now even NDP stalwarts like Gary Doer recognize the boon free trade is to the Canadian economy. I question one of the platforms another Turner by the name of Trudy is hitching to her wagon. As she apparently has the support of the mayor’s office, I hope the Sam Katz I have come to ardently defend and support is not complicit in Trudy Turner’s unabashed support of a land value tax…
Motivational Tunes:
Seal – Heavenly (Good Feeling)
The Cure – Just Like Heaven
Nine Inch Nails – Heresy
(whoa – I just noticed a common theological theme here – purely accidental!)
posted by Unapologetic Ex-Winnipegger @ 7:09 PM
3 comments
3 Comments:
Call me an unapologetic Pennsylvanian. :)
I support the land tax, so much so that I am the director of a foundation that advises cities in the US on the issue.
A land tax is meant to be the source of revenue so that government may operate. That means rolling bad taxes - income, sales, building and business taxes in the land value tax.
1) You've got your New York and London, and I've got my Sydney and Copenhagen (both land value tax cities). In Hong Kong, the government owns the land. However, land is leased, so it is essentially a land value tax.
2) A land tax does not increase the risk of new development. It increases the risk that private land banking might not be so profitable. The community creates land value, so no one cares if private land owners are inconvenienced. The city wants capital investment, and doesn't want vacant lots.
Case study: In the city of Pittsburgh, which had a land value tax for 80 years, your was one of several that led to suspension of the land tax. Overnight the tax bill for office buildings rose by literally millions of dollars a year. Rents rose, vacancy increased. That's an outcome no one wanted or expected.
3) Barriers to entry decrease with a land tax, as the cost of sweat equity decreases. Small holders and operators benefit.
The reason we were able to get so many cities in Pennsylvania to adopt land value tax is that tax bills for homeowners dropped, sometimes dramatically.
That's why in Philadelphia, the Realtors, the American Institute of Architects and the Phil. Homeowners Assoc. all supported, and support the land value tax.
Your laundry list of supporters seems to come from a very narrow range of the overall tax base - people that all stand to benefit from the shifting of the tax burden from homeowners to business. Did the initiative have the support of regular business owners not standing to profit from the benefit "shift" to homeowners? What about COMMERCIAL real estate agents and not the residential ones? I would predict a rift in the opinions between the two different types of agents.
How are income and consumption taxes "bad"? I would argue that they are more equitable in that taxes are paid when people have the MEANS to pay them via profit or conspicuous consumption. As a business owner, I assure you that were I to make the value judgement you did, my notion of "bad" taxes would be the ones that are levied even when I don't have the means to pay them.
Perhaps business reporters worldwide are missing something when their reports are predominately on the activities of the London and New York stock exchanges? While Sydney and Copenhagen are both charming cities in their own right, they pale in comparison to the former from a businessperson's point of view.
You assert that the land tax does not increase the risk profile of a new project but then go on to state that no one cares if land owners are inconvenienced. If the risk profile is not increased, what is the inconvenience? How do small owners benefit and how do barriers to entry DECREASE with INCREASING costs associated with acquiring land?
You lost me on your sweat equity claim. Are you suggesting that small business people would build a building and develop the land on their own? Would you want someone that has a core competency in manufacturing widgets grabbing a hammer and framing walls, running electricity and putting in sewers? I know I wouldn't - I would hate to see this person electrocute themselves because they are not a licensed electrician.
Your laundry list of supporters seems to come from a very narrow range of the overall tax base - people that all stand to benefit from the shifting of the tax burden from homeowners to business. Did the initiative have the support of regular business owners not standing to profit from the benefit "shift" to homeowners? What about COMMERCIAL real estate agents and not the residential ones? I would predict a rift in the opinions between the two different types of agents.
How are income and consumption taxes "bad"? I would argue that they are more equitable in that taxes are paid when people have the MEANS to pay them via profit or conspicuous consumption. As a business owner, I assure you that were I to make the value judgement you did, my notion of "bad" taxes would be the ones that are levied even when I don't have the means to pay them.
Perhaps business reporters worldwide are missing something when their reports are predominately on the activities of the London and New York stock exchanges? While Sydney and Copenhagen are both charming cities in their own right, they pale in comparison to the former from a businessperson's point of view.
You assert that the land tax does not increase the risk profile of a new project but then go on to state that no one cares if land owners are inconvenienced. If the risk profile is not increased, what is the inconvenience? How do small owners benefit and how do barriers to entry DECREASE with INCREASING costs associated with acquiring land?
You lost me on your sweat equity claim. Are you suggesting that small business people would build a building and develop the land on their own? Would you want someone that has a core competency in manufacturing widgets grabbing a hammer and framing walls, running electricity and putting in sewers? I know I wouldn't - I would hate to see this person electrocute themselves because they are not a licensed electrician.
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