However, as wonderful as land taxes are, there is at least one very significant drawback: equity.

Here’s your problem: take two houses on Queen Anne hill built next door to each other, each on a 5000 sf lot. One of these houses is a 4,000 sf mansion with top quality architecture, and luxury finishings. This house was built recently and is occupied by a Microsoft millionaire. The other is a 1,200 sf bungalow built near the turn of the century for a working class family, which has been passed down for 4 generations and is now occupied by a retired couple on a fixed income.

Now, under the current tax regime, the value of the mansion is 4 to 5 times the value of the bungalow and thus the owner’s property tax bill is 4 to 5 times that of the retired couple in the bungalow. However, the value land underneath each of these houses is the same, and thus under a pure land tax, the property tax bills would be the same for these two properties. Even if you phase it in slowly, shifting from an improvements tax to a land tax will result in lower tax bills for the wealthy and higher tax bills for the poor.

This same issue applies in multifamily housing. Take a standard low-cost stick-frame apartment building compared to a luxury condo development of the same density in the same neighborhood. Again, the tax bill for the low-income housing will go up while the tax bill for the luxury condos would go down. Same with office development: lower tax bills for downtown highrises and higher tax bills for old historic buildings in Pioneer Square.

Part of what is good about land taxes is that they discourage land speculation and encourage development. That’s great when you are talking about parking lots and strip malls, but not so great when you are concerned about historic preservation and gentrification.

Notice that these are not selfish, private interests pitted against the public good. These are real public interests that matter a lot to a lot of people.

Can a land tax regime be developed in a way that allows us to capture the benefits of such a tax (greater efficiency, punishing land speculation, greater density) without these deal-breaking equity impacts? Well, yes and no.

One possibility is a hybrid tax in which land and improvements are assessed and taxed separately with land taxed at a higher rate. Philadelphia does this for example. Another tool that could be used is a progressive property tax, which basically taxes land at a flat rate but improvements are taxed at a higher rate based on the per unit value of the housing. Per unit is the key. A midrise apartment building is more valuable than a mansion, but not on a per unit basis. Tax exemptions for historic structures and affordable housing can help mitigate the incentive that land taxes create to demolish these structures.

Unfortunately, any move away from a pure land tax creates new distortions and inefficiencies and thus undermines some of the motivation for making the switch in the first place. The key is to find a balance between the competing goals of efficiency and density that militate for a land tax and the goals of equity and preservation that militate against it. On this issue, there are no easy answers. Any shift in tax regime will require careful thought and consideration of all of the direct and indirect consequences. It won’t be easy, but the potential benefits of a shift toward land taxes make it is a conversation worth having.

A switch would be a major shake-up of the status quo, but I’m not entirely sure it would be as bad as many property owners might fear. Would it have a tremendously huge effect on existing “high” use/improvements? Midrise and highrise (high value) improvements are typically built on high value land (downtown, near transit, etc). It would have to be structured and advocated for in a way that got these existing high use property owners on board (or at least indifferent), so that the greatest effects could be brought to bear on those who are sitting on valuable land with poor uses (downtown parking lots, etc). If the needle could be threaded just right, it could also be structured not to have tremendous effects on the vast majority of single family housing owners… and leave a lot of folks unaffected and really hone in on discouraging the worst abuses of underutilization of land.

But that could be a very hard needle to thread. This is all probably too wonky for uninterested voters to ever understand or care about unless it’s sold purely as “lower! property! taxes! for! you!” Maybe it’d be better to get the DSA, et al to lobby city council for a gradual transition.

As Katz rightly points out, cities aren’t just hurting their neighbors, they are hurting themselves; they don’t actually get much tax revenue — most of it goes to the state (~6.5 of the 8.6 cents collected per retail dollar). http://www.mrsc.org/Publications/revguide.pdf

Henry George style land taxes would correct some part of the taxation side, but we also need to correct the regional revenue sharing side. If a larger share of the sales taxes went to support regional infrastructure rather than state and local, then we would be able to manage growth and we would reduce the incentive to beggar your municipal neighbor