USA: Grounds for change? Land tax is best remedy, says Libertarian

USA: Grounds for change? Land tax is best remedy, says Libertarian Debbie Gebolys Ohio could get rid of its slums, gain new buildings on vacant lots and stop suburban sprawl. It could even save the average homeowner a little money. So says retired Case Western Reserve economics professor Bill Peirce, the Ohio Libertarian Party candidate for governor. The way to change Ohio's landscape, Peirce says, is to throw out the property-tax system and replace it with another first proposed in 1880. Peirce doesn't harbor any illusions that he'll be living in the governor's mansion next year. But he hopes his maiden voyage into politics allows him to convey some alternative notions to voters. That's where land-value tax comes in. versions of the system are in place in Pennsylvania, Hong Kong, Singapore, Japan and Australia, among other places. It's been mentioned in Ohio several times in the last century, and people in Indiana, Maryland, Minnesota, Virginia and West Virginia are among those considering it. Here's how it would change things here: To make taxes fair, Peirce said, the state should abolish all tax incentives and allow market forces to dictate where construction goes. Then, it should upend the property-tax system, which has valued buildings at roughly three times the value of land for the last century or more. In its place should go a system in which land makes up at least half of the taxable value of a property. The value of buildings, if taxed at all, would be radically reduced. The result An end to tax policy that rewards owners of dilapidated and vacant properties with low tax bills and penalizes those who invest in their properties with higher tax bills. Since buildings become less important to total value, property owners don't pay higher taxes when they add a Florida room or build a 12-story office instead of a two-story. Owners of vacant lots or dilapidated buildings see their taxes rise to the level of similar-size properties nearby. The tax increase motivates slumlords to invest enough to pay the higher bill or sell out. When new buildings appear, surrounding land is worth more money, too. So as surban renewal beautifies neighborhoods, it raises their relative tax contribution. That means tax bills in other neighborhoods can come down. Since land becomes the prominent basis for taxes, people save tax money if they buy smaller lots. That could help stop sprawl. Does it really work like that? Joshua Vincent, executive director of two Philadelphia groups dedicated to land-value tax, said it does. He heads the Henry George Foundation of America, the lobbying arm of an international tax-reform movement, named for the 19 th-century inventor of the land-value tax. Vincent also runs the Center for the Study of Economics, which conducts feasibility studies for communities considering the tax system. "Everything we want, new buildings, improved buildings, is punished by taxation," Vincent said. "Land tax is the only way to tax without distorting anything." Of 19 Pennsylvania cities using landvalue tax systems, Scranton has been doing so longest, since 1913. All of the others adopted it since 1975, when the Midwest was becoming known as the Rust Belt. As the steel industry tanked in Pennsylvania, so did the fortunes of many of its towns. Cities like Altoona, Allentown, McKeesport and Harrisburg were in desperate straits when they adopted the tax system, Vincent said. "In one city, they couldn't pay the municipal light bill, so they turned off their street lights and stoplights. In Aliquippa, they laid off the entire police force," he said. "The reason they adopted land tax was to spare their citizens higher taxes, frankly." Land-value taxes accomplished at least one goal. Construction rose, and cities began to recover. "They're not in great shape now, but they're a hell of a lot better than they were," Vincent said. Pittsburgh used land-value tax until 2000, during its own severe economic decline. Several economists studied how it worked in Pittsburgh, where taxes on land were raised to more than five times the rate on buildings in 1979. They found that while Pittsburgh did have a 1980s building boom, other factors could have helped. Among them were tax breaks on new construction. Is Pennsylvania so much different from Ohio ? Candidate Peirce doesn't think so. "What we want is to make it easy for people to establish businesses and make them grow," Peirce said. "Let's get the economy moving enough so kids have a chance to stay at home rather than leaving the state." Ohioans need the urgency that prompted Pennsylvanians to change their system, he said. "The major (political) parties have our state in a perilous position with a difficult employment situation, a difficult economic situation and tax rates among the highest in the country," he said. Ohioans' state and local tax burden has skyrocketed in the past three decades, according to the Tax Foundation, a nonpartisan think tank in Washington that promotes lowering taxes and simplifying the tax system. In 1979, Ohio ranked 47 th nationally for the percentage of income people pay for state and local taxes. By 2004, Ohio had jumped to seventh. The state fared better when the Tax Foundation focused on 2002 property taxes per capita. Ohio's $933 per person ranked 23rd highest in the country. Pennsylvania ranked 28th, at $885 per person. Both were below the national average of $971. Ohioans before Peirce have proposed land-value taxation, most recently in the late 1990s. Gov. Bob Taft convened a committee to study how to make Ohio more attractive to businesses. A Cleveland State University economist suggested land value tax, said Frederick Church, deputy commissioner for tax policy in the Ohio Department of Taxation and a committee adviser. The idea was quickly discarded. "Land-value tax merits are a fairly abstract argument," Church said. "Completely overturning a property-tax system to encourage redevelopment of downtowns is a pretty blunt instrument for the problem at hand." Franklin County Auditor Joe Testa said taxpayers might have trouble accepting such a radical change. Neighboring houses on identical lots in Schumacher Place, for instance, are now valued at $150,000 and $500,000. "If you took away the building, because they are on the same size piece of dirt you would value them the same. Make them both what' Both $150,000 or both $500,000' " Peirce isn't saying exactly how tax bills would change, and that creates uncertainty for some observers. "Until you understand all the ramifications, it's hard to advocate one way or another," said David Beach, steering committee chairman of Greater Ohio, a land-use planning advocacy group. But in general, change could be good. "A different way of taxing land could have an impact on preserving our cities and towns," he said. "Tax policy is a very important issue, and it can influence where land is developed and whether it's easier to rebuild cities or build out in green areas." Because of that, "Peirce's idea is one that we might want to take a look at," Beach said... The Columbus Dispatch