Get Real on Property Tax Reform (part two)

By Kris Nelson and Tom Gihring of Portland, Oregon. Kris and Tom are members of Common Ground USA, a national organization dedicated to promoting prosperity by reducing taxes on labor and capital and using the value of land and other natural/public resources to pay for essential governmental services. Learn more at CommonGroundORWA.org.

Yesterday, we reviewed the widespread distortions and inequities that Measures 5 and 50 have caused in property taxation. What would be a permanent solution to fictitious assessments and inadequate local funding measures? Let’s look at a highly regarded alternative tax system that would protect property owners from unfair treatment, return to true market values, support local desires to fund schools and vital services, and end economic distortions through built-in tax incentives that lead to local job creation and expanded tax bases.

Consider the success of many jurisdictions in Pennsylvania, Australia, Taiwan, and elsewhere that have adopted a land-based property tax. Legitimately created value belongs to the creator of that value; a differential-rate land value tax upholds this principle. Where a higher tax rate on land assessments is offset by a lower building rate (revenue neutral), owners invest more in buildings. Land values are virtually independent of property owners’ actions; they are created by public investments and location advantages. Unlike a tax on buildings, a tax on land value raises revenue without distorting production or consumption.

Many experts consider land value taxation (LVT) the most progressive of all taxes. Besides the ability to pay, tax equity has another dimension – payment in proportion to benefits received. Land rent (land price appreciation) is a community-given asset, reflected in true market assessments; it is real money. What could be more fair? Tax the speculative value of my property which I didn’t create, but don’t raise my taxes following major renovations.

LVT is a self-perpetuating way to fund urban infrastructure. When cities up-zone or expand urban growth boundaries, land tax revenues from newly developing locations can be used to fund local infrastructure, which further boost site values, which in turn raises added revenue to fund more infrastructure.

About a dozen Nobel economists attest to LVT’s record of providing incentives for urban revitalization, as well as its ability to raise sufficient, reliable, broad-based revenues. It is relatively easy to administer, reduces tax appeals and staff, routinely doubles building permits and lending, and cannot be “sheltered.” To learn more about the principles and practice of LVT, as well as current legislative proposals, visit our new northwest chapter Web site of Common Ground USA.

Isn’t it time the Legislature shows leadership on getting to a permanent solution? For starters, it could initiate a task force to weigh the equity and economic incentive effects of a land value tax with a revenue limit (HB 2509, Revenue Committee). If the discussion puts innovative proposals on the table, as the governor has urged, 2013 could be a banner year for tax and revenue reform in Oregon.

Feb. 16, 2013 Posted in guest column.