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Detroit wants to be the first big American city to tax land value

economist.com

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Re: Detroit wants to be the first big American city to tax land value

#851

Post by simonh »

giantg2 wrote: post #765
ndsipa_pomu wrote: post #751

Earlier quoted context omitted.

> Empty land isn't using any of those things It doesn't have to use them to benefit from their proximity. Land in the middle of a barren desert is usually worth far less than a similar piece of land near a populous city.

Sure, your point? The government benefits on the higher sale tax revenue too. It's only a true benefit when something is realized. The densest areas of many cities are seeing decreases in population, so maybe that infrastructure isn't the main driver of value.

The point of a land value tax is to incentivise that realisation. In prosperous cities the reduction is inner city population is due to land being used commercially, and maybe up to a point that's fine. You can always adjust the value tax based on type of actual usage. The important thing is that it's used efficiently in a way that benefits the community.

Re: Detroit wants to be the first big American city to tax land value

#852

Post by TapWaterBandit »

xyzzy123 wrote: post #324
TapWaterBandit wrote: post #245

Earlier quoted context omitted.

Interesting question. I think in this scenario there'd be a couple of options: 1. The land is worth a lot. If that is the case, you should be able to sell it reasonably easily. 2. The land is worth very little. In that case the tax would be insignificant because the land has so little value.

The problem is if the state doesn't see eye to eye with you on the value. This can happen for all sorts of reasons, they might be using a simple algorithm that takes into account nearby values / recent sales as comparables. Those lots might have subtle features which makes them much more valuable than yours. Etc. You get hit twice if over-assessed, first of all because you have to pay more, secondly because the high…

I'm trying to imagine the context where there is a property in an area with high sales pushing the price of land tax up but this property isn't worth a similar amount for being in the same area.

If people are buying in an area and that drives up prices because it shows the area is valuable, in what conditions would your land not be worth a similar (ish) value?

Re: Detroit wants to be the first big American city to tax land value

#853

Post by AlchemistCamp »

bombcar wrote: post #794
AlchemistCamp wrote: post #703

Earlier quoted context omitted.

That claim isn’t true. The book goes into details like this and taxes would go down for ~97% of parcels. It would go up a lot for parking lots in city centers and certain segments of commercial real estate.

So limiting Georgism LVT to only commercial real estate would get you all of the benefit without affecting residential properties? Then simply enact that, and the voters won't care because their taxes will stay the same (they probably will never actually decrease).

That isn't quite what I said, but I really suggest Lars's book, if you have a genuine interest in this!

You won't get an absolutely black and white one sentence solution from it, but it is thought-provoking and contains some really useful ideas, IMO.

Re: Detroit wants to be the first big American city to tax land value

#854

Post by enragedcacti »

ejstronge wrote: post #811
enragedcacti wrote: post #778

Earlier quoted context omitted.

> So I am unclear how the explicit taxation of land value and improvement value that exists currently causes differences in behavior from the land value tax system you outlined. Land with a skyscraper already on it and land next to a skyscraper have related but not equal market values. Switching from a tax on market value to a tax on land value rewards the the owner who developed their land and punishes the owner who…

> Land with a skyscraper already on it and land next to a skyscraper have related but not equal market values. I agree! But in appraisals that I have seen, there is an effort to assess the highest and best use of a parcel as well as a break-out of the value of the land associated with a parcel. If the highest and best use of a parcel is a skyscraper, a sale of the parcel should occur near the valuation of skyscrapers…

> It would seem that the land value of both parcels should be the same.

Yes, the land value is the same. lets say the Land value is $1 million each and the skyscraper is worth $1 million. Lets say property taxes are 1% under the current system:

0.01 * 2,000,000 = $20,000/year for skyscraper plot

0.01 * 1,000,000 = $10,000/year for vacant plot

There's a total of $30,000 per year in income so we have to equalize our LVT to match. a 1.5% LVT gives us:

0.015 * 1,000,000 = $15,000/year for skyscraper plot

0.015 * 1,000,000 = $15,000/year for vacant plot

The owner will evaluate building a skyscraper against investing in some other venture unrelated to the land. Under Property Tax, investing that $1 million into his property adds a -1% to his projected yearly returns that isn't present for other investments that $1 million is competing for. That discourages development even if the skyscraper would have been profitable.

Re: Detroit wants to be the first big American city to tax land value

#855

Post by sagarm »

delecti wrote: post #712
rgblambda wrote: post #685

Earlier quoted context omitted.

Wouldn't that effectively punish the owner for improving the property? A tax purely on the land has the same justification as a windfall tax. The value goes up or down independently of any action of the owner. i.e. They didn't do anything to deserve the increase in their wealth. The value comes from what the land is surrounded by.

The current situation can punish the owner for improving the property, because you pay based on the overall value of your house. A new roof and siding could make your home more valuable, increasing your tax. Land value tax would make your individual changes a non-factor. It could instead leave you on the hook for increases in the desirability of the neighborhood which you have no say in. So it would mean that homeown…

> screwed even harder if their neighborhood gets gentrified.

Meaning, their land value and therefore wealth has gone up. Many people would love to be "screwed" like this, and in fact very hard at getting into the position amenable to "screwing."

Re: Detroit wants to be the first big American city to tax land value

#856

Post by sagarm »

bombcar wrote: post #832
sagarm wrote: post #786

Earlier quoted context omitted.

We prevent people from using their property as they see fit all the time via zoning. It is in fact mostly those with generational wealth that use this power.

Most people don't care about zoning, but they really do care about zoning changes that affect them. Being told you can't live in your house anymore because it is now zoned commercial gets people riled up, and being told the same because it's now too expensive does the same. It's a hot-button issue but you can defuse it by putting safeguards in, though they're not always successful - see eminent domain scandals.

Actually this entire construction is wrong: currently people who improve their land get penalized by higher taxes. If there are only land value and not property taxes, we are in fact increasing your freedom to make changes to your land without penalty.

Re: Detroit wants to be the first big American city to tax land value

#857

Post by msla »

mactrey wrote: post #820
msla wrote: post #694

Earlier quoted context omitted.

So people will be paying a higher tax than they ought to be if they aren't trend-chasing the economy to always be engaging in that "best use" from year to year? That sounds perverse in itself, especially since an economy needs diversity to function, and if everyone is incentivized to chase a single thing per region you end up with overproduction of that and underproduction of everything else.

Land that’s already been improved would pay less in taxes. Empty lots, parking lots, and other unimproved land would pay more tax. Calling an economic incentive to do something with your empty lot in an urban area “perverse” seems.. extreme.

But the post I responded to implied that if you weren't in the most-profitable economic sector, you'd be taxed as if you were, causing excessive loss, leading to people switching businesses to be in that one Golden Sector regardless of what the economy needs and can support.

Besides:

> Empty lots, parking lots, and other unimproved land would pay more tax.

Believe it or not, we need ranches and farms. Taxing them out of existence would be bad.

Re: Detroit wants to be the first big American city to tax land value

#858

Post by msla »

ethanbond wrote: post #719
msla wrote: post #694

Earlier quoted context omitted.

So people will be paying a higher tax than they ought to be if they aren't trend-chasing the economy to always be engaging in that "best use" from year to year? That sounds perverse in itself, especially since an economy needs diversity to function, and if everyone is incentivized to chase a single thing per region you end up with overproduction of that and underproduction of everything else.

Is a city full of pet stores valuable? I don't see why this would encourage economic homogenization.

It would because anyone who isn't in the best-paying part of the economy would be taxed higher than their actual income could support, leading them to either switch businesses or go broke.

Re: Detroit wants to be the first big American city to tax land value

#859

Post by msla »

nostrademons wrote: post #743
pmontra wrote: post #613

Earlier quoted context omitted.

If you want to tax properties, why not taxing both the land and what is build upon it? And wardrobes, tables, books or computers (every year) but that's another story.

Because people choose to build upon it, but the land itself was always there regardless of human action. The arguments for an LVT fall into both economic & moral categories. The economic argument is that the elasticity for land is zero. It's always there, always will be there, and no human action is going to change that (barring things like landfill, which are a literal edge case that doesn't matter much in the grand…

> The land will still be owned, just by different people, regardless of how high it is taxed. That means that the government can raise revenue without curtailing economic activity.

And this is a fantasy. Some land is marginal: Taxing it more would reduce the profit anyone could make from it to nothing, leading to empty lots that aren't owned by anyone because the last owners were delinquent on taxes to the point the local government took the land from them and is now trying to auction it off. Look at houses in Detroit being sold for a dollar for an example of this. The city makes no money from those.

https://99wfmk.com/detroits-one-dollar-houses/

> It sounds like a good deal...a dollar for an old decrepit house – but then what? Then you have to pay for all the repairs, renovations, excavation (if needed), property taxes, lawn work.....so you fork out just one whole dollar but you wind up spending no less than six figures getting it in shape. Whether you plan to keep it or sell it is a moot point. You're still out that money.

Plus:

> The moral argument is that nobody built the land out of their own labor, they only conquered it.

Turn a piece of land into a farm and say that.

Re: Detroit wants to be the first big American city to tax land value

#860

Post by mannyv »

Assessment is the bugbear of any property tax system. The assessors are employed by the entity that will be harmed if the assessments go down, so they're obviously invented to keep assessments high.

That said, it's good that Detroit understands its goals and is thinking of what levers are available.

The problem is that you need structures. A city full of vacant lots isn't worth anything, and if you force people to build they won't. Why build when your building will never be worth anything?

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