Urban Experts View Land Value Taxation
[Reprinted from the Henry George News, May,
TWICE previously the Nation's Cities magazine, organ of the
prestigious National League of Cities, has focused entire issues on
particular urban problems. Both times a substantial section was
devoted to an unequivocal advocacy of land value taxation. In March
1965, 15 pages were devoted to the question, "Are Property Taxes
Obsolete?" and five of these were directly concerned with the
land value tax.
The April 1967 issue considered, "What Kind of City Do We Want?"
in 32 pages, at least four of which were devoted to LVT. Reprints of
these issues have served Georgists extremely well. The arguments have
been well substantiated with solid facts and figures. There is no
doubt that the impressive support of the Nation's Cities publication
and the long list of prominent experts it has lined up on its
sponsoring panel, have served to still the skeptics and make the
apathetic take notice. Cynics were put on the defensive perhaps more
by the sponsorship than by the reasoning.
In its March 1969 issue Nation's Cities once more focuses on a major
urban problem, "The Financial Crisis of Our Cities," and
asks what the state and federal governments should do to help and what
the cities must do to help themselves. Thirteen pages are devoted to
an enthusiastic no-ifs-and-or-buts advocacy of LVT. Reprints available
in booklet form (32 pages) will convince readers that Georgist ideas
are not out in left field any longer but are starting to flow into the
A word about the sponsorship of this study - its findings are based
on a conference held by representative leaders from the National
League of Cities, Conference of Mayors, Council of State Government,
National Governors Conference, National Association of Counties,
Committee on Economic Development, Advisory Commission on
Intergovernmental Relations, National Commission on Urban Problems,
and Ford Foundation. Also the U.S. Chamber of Commerce, National
Industrial Conference Board, National Association of Manufacturers,
National Housing Center, Regional Plan Association, New York Economic
Development Council, Small Business Administration, and Tax
The conference was organized by the first five of these organizations
in association with Time, Life, Fortune and the Robert Shalkenbach
Foundation. Assisting in the deliberations were three outstanding
university economists and the former Secretary of Health, Education
and Wefare. It is worth noting that although the report represents a
consensus of opinion, this implies broad and general agreement rather
than complete unanimity, since the organizations represented are not
to be understood as having officially affirmed the general consensus.
Fair Treatment For Cities
All the conferees apparently agreed that cities are hobbled by state
limitations on their taxing powers and particularly on their ability
to impose a higher tax on land. Cities have to compete with state and
federal governments for tax sources, and they generally come out third
best. In addition, cities are burdened with far more than their share
of welfare, education and regional facility costs. We have to rethink
clearly what level of government should do what and which should pay
for what. These costs are not entirely local in nature. They are in
fact statewide or national, yet the tax-limited cities are expected to
foot the bill. Let the state and federal governments provide the
funds, but let the cities be in charge of spending them. Local people
know their own problems best. Who in Washington could have known that
the people in Pittsburgh's Hill slum would assign their three top
urban renewal priorities to collection of garbage, repavement of
streets and more lights?
One guideline for federal-state subsidies to cities is that the aid
would go mainly to the cities that try first to help themselves by
imposing an adequate property tax. There is no point in cities
reducing their property taxes and then substituting federal or state
subsidies. "How good a case for bigger state and federal
subsidies can a city make if its property tax rate is well below the 2
percent of true value national average, and less than half the rate
many other cities impose?"
Today big differences exist in local tax efforts. In 1966 Birmingham,
Alabama taxed its median homeowner .92 percent of true value while
Montgomery taxed only .54 percent. In Memphis the median homeowner was
taxed at 2 percent as against .95 percent in nearby New Orleans. Los
Angeles doubletaxed at the rate of 1.85 percent while San Francisco
settled for .93 percent. If laggard-taxing cities increased their
taxes federal-state subsidies wouldn't need to be so high.
Of course federal-state subsidies could also be used to encourage a
gradual shift to land taxation. Such subsidies could encourage cities
to attack problems they have too long neglected, like air pollution
and metropolitan-area government units ("if metropolitan-area
government units below a certain size were declared ineligible for
federal block grants we might be surprised by how many too-small units
might decide to get together").
Consider one of the big city government expenses - education. Why
should federal and state bear more of this expense? Nation's Cities'
spokesmen give four reasons:
(1) Cities just can't afford zooming education costs.
(2) "The impact of school costs varies too widely from one tax
jurisdiction to the next, and it costs central cities much more than
it costs the suburbs to give all its children comparable schooling."
Central city children are more numerous and, if culturally deprived,
are more expensive to educate. The City of New York spends per pupil
for the public schools in Harlem more than is required for grade
school tuition in the most expensive private schools and still it is
(3) "With our increasingly mobile population it no longer makes
sense to think of education as a local cost and treat it as a local
cost to be paid for out of local taxes."
(4) If states subsidized education, suburbs would have one less
reason to resist consolidation into larger and more functional
governmental units (it wouldn't cost them more in taxes to
And as for poverty and welfare costs, what makes them more local than
federal in nature? Aren't they the outcome of structural defects and
injustices in our total economy?
But many Georgists might object to urban subsidies or to a shift of
taxes to Washington, preferring instead that urban costs be paid out
of land taxation. Furthermore they would prefer no other taxes at all,
or as few as possible. Cities receive subsidies now from federal and
state levels, but "today the shocking fact is that in most states
per capita state aid is greater to the suburbs than to the central
cities whose need is so much greater."
The Nation's Cities conferees unanimously condemned local property
tax exemption for state and federal property inside city limits.
Expensive city services are provided to federal post offices free of
charge. Isn't this a reverse subsidy by the cities to the state and
federal governments? "Why, for example, should New York City
subsidize the army with a $37,340,000 exemption on Fort Hamilton or
the navy with a $50,940,000 exemption on FloydBennett Field?"
An increasing need was seen for subsidy help to cities whose costs
are rising vertically, and the bigger the city the greater the
urgency. Nevertheless, its final caveat is that although cities should
try hard for subsidies, or for the equivalent of letting state and
federal governments assume certain welfare and education burdens that
are properly theirs, they would be foolish to count on getting any
sudden increase in federal aid. They had better do it on their own, by
Impact of Non-Land Value Taxes
The report presents eye-opening evidence that taxes are dead weight
on the economy of a local city. For instance:
(1) "Before New York City cut its sales tax back from 4 percent
to 2 percent a university research study showed that each 1 percent of
tax was driving 6 percent of all clothing and household furnishing
sales out beyond the city line (along with thousands of jobs)."
(2) "The one and only reason the federal government can get away
with an income tax schedule ranging from a minimum of 15.4 percent to
a high of 77 percent is that no one can escape the tax without giving
up his citizen-ship; but no city has dared raise its maximum income
tax rate higher than 3 percent for fear of speeding the upper-income
and middle-income exodus to tax-cheaper suburbs."
(3) "The corporation tax takes 52 percent of the admitted
profits of corporate business (plus another 5 percent or so in
accelerated payments). On top of that the personal income tax takes an
average of some 30 percent of whatever corporate profits are paid out
in dividends, so all told the federal government is now socializing
close to two-thirds of business profits from all but the smallest
"Affirmative evidence that such stiff tax rates can be a heavy
drag on the economy was given by how the small relief provided by the
Kennedy tax reduction abetted an overnight acceleration in the GNP
(4) "A 3 percent-of-true-value tax on improvements is apt to tax
away 75 percent of the net income a new building would otherwise earn."
(5) "A3 percent-of-true-value tax on improvements is the
installation plan equivalent of a 52 per cent sales tax [on new
(6) "A 3 percent-of-true-value tax on improvements will
add more than 25 percent to the rent a tenant must pay or more than 25
percent to the carrying costs an owner must meet."
(7) The present real estate tax collects two or three times as much
money from taxes on improvements as from taxes on land (reason - total
improvement assessments are double or triple land assessments).
Why We Should Exempt Improvements
Local governments depend for 87 percent of their tax revenue on the
property tax, which, as all Georgists know, is really two taxes: a tax
on man-made improvements, which is deleterious - and a tax on land,
which is positively beneficial to the economy - so much so that it
should be imposed even if the revenue collected should be (foolishly)
tossed into the sea. HGN readers know the arguments for LVT well, too
well to repeat here. Suffice it to say that the Nation's Cities report
tells the same old story but in a delightful way interlacing theory
with fact. Did you know that from 1955 to 1965 building site prices
have climbed 6.19 times as fast as the index of wholesale commodity
prices? (No shortage of revenue from a land tax!) Here are some more
facts you might not have known:
(1) Land prices for building have been soaring 8 percent to 15
percent a year.
(2) A $1 million piece of land can be held out of use for a property
tax cost as low as $5,000 a year, with up to 77 percent of that $5,000
deductible from the owner's federal income tax.
(3) The Tax Foundation reports that most federal urban redevelopment
subsidies have gone to enrich the owners of slum property by raising
the price of slum land ($484,000 per average acre for the slum
properties bought for demolition by the New York Public Housing
Authority) and have done little to help the poor people living in the
(4) "The federal government has been bailing out our slumlords
by buying them out at prices averaging ten times the assessed
valuation and three times the re-use value" via the urban renewal
land write-down subsidy program.
(5) Mason Gaffney's Milwaukee study shows that a shift to land
taxation would make subsidies unnecessary for developing underused
land which accounts for three-fourths of the downtown area. Why?
Because the new tax arrangement would make re-building profitable.
(6) "More intensive use of downtown should, perhaps
surprisingly, lessen downtown traffic congestion, because more people
could walk, escalate, or use public transportation instead of driving
to where they want to go. Says Professor Gaffney: 'Sprawl is not a
flight from congestion; it is a major cause of congestion by making
more people use more cars to travel more miles to downtown.'" In
addition, sprawl balloons city costs.
(7) "In Milwaukee today the assessors must spend 80 percent of
their time on improvements - only 20 percent on land values."
(8) "The shift should be popular with most voters because it
would reduce the taxes on most owner-occupied homes (since their
improvement-to-land value ratio is well above the city-wide average)."
(9) Land value taxation, would increase construction, thus land-rent
also; this would mean that the tax base would be an expanding one,
unlike the present property tax.
For confirmation of the efficacy of land value taxation the
experience of Southfield, Michigan is cited as the state's boomingest
city. In 1962 the assessment (and therefore the tax) on land was
doubled, thereby permitting a substantial reduction in the tax on
improvements. "Since then Southfield has recorded more new office
building construction than 30-times-as-big Detroit next door; land
values have continued to soar, until some acreage that was assessed at
$2,400 in 1961 is now assessed at $100,000; and the grateful voters
three times re-elected the mayor who instigated the tax shift."
Other Helps for Cities
Many new ideas are contained in this report. All ate
thought-provoking, many are desirable, some are questionable. The
conferees did not stop short of advocating a serious reform.
In the field of education it was suggested that costs could be
reduced by using movies, tape recording and TV. In my opinion however
these aids should be considered as supplements, not substitutes, since
students complain vociferously if their classwork becomes strongly
audio-visual. A variety of other suggestions, such as the following,
are worthy of consideration:
(1) High school degrees are not needed for such police activities as
ticketing parked cars and collecting tolls. Many of the unemployed
could qualify for such jobs. "For some police functions like
fighting organized crime the 'best is none too good; for other police
jobs a high school graduate with courage, good health and proper
training can do at least as well as a Ph.D. So it makes no sense that
in so many cities the starting requirements and pay scales for all
police jobs should be so nearly alike. The end result of this leveling
practice can only be higher costs for a mediocre police force."
(2) "Cities could save much of the land cost for new schools on
high-priced close-in land by following New York's example and sharing
the site with an apartment tower, with the school occupying the lower
floors entered from one side of the block, and the apartments using
the air rights above and entered through a lobby on the opposite side."
(3) To increase the intensity of downtown land use, why not follow
San Francisco's example and put pools, trees, plantings and
playgrounds over stores, schools and service industries? Central city
land is too valuable to be used for only one purpose at a time, and
requiring urbanites to travel far from their recreation is burdensome
to them and their highways.
(4) Cities should charge for the specific business services they
offer just as private business does. For example, water meters at
rates high enough to cover cost would stop water waste. Also, "it
is insane to let motorists park at the curb [tying up traffic] for 10
cents or 25 cents an hour where parking lots and air pollution would
"To discourage industrial water pollution, industries that pour
pollutants into streams and sewers should be charged the full cost of
purification. If this policy can keep the Ruhr river in Germany safe
for drinking purposes there is no reason why it should not do as much
for the Hudson, the Mississippi and Lake Erie."
In my opinion the land price cannot differ from that of neighboring
lots of the same locational advantage. Also cost-less-depreciation of
buildings may bear little relation to market prices and current
usability of buildings, which is what the assessment should be based
on. It seems to me that we should assess land first and then assess
the building at whatever value remains, rather than vice versa. And if
we assess property in this order we will not only arrive at a truer
value of land, but we would come enthusiastic advocates of LVT because
it is ethically right. Each man owns his own labor; labor is the sole
justification of private property; thus, only those things producible
by labor can rightfully be owned, and so land can be rightfully owned
only if the landowner pays society for the annual privilege of using
it (i.e., rent). Alternatively, we all have an equal right to the
opportunities afforded by nature, but these can only be appropriated
by land ownership, and so we all have equal rights to land ownership,
or more practically, equal rights to land rent.
We assume that if something is ethically right it will be
economically beneficial. Very good, but it is nice to have the facts
and figures to prove directly that it is so, and this is what the
March 1969 issue of
Nation's Cities provides us with.