The Nuts and Bolts

Imagine speaking to a Mayor and City Council. They accept the idea of a two-rate land value tax (LVT), meaning a higher tax on land assessments and a lower tax on building assessments.

They agree LVT is a worthwhile change. However, keep in mind that the city will raise the same revenue as from its current one-rate property tax. So, the city government will likely expect these probable deliverables:

  • The two-rate tax will lower taxes for most homeowners compared to what they are currently paying. As for tenants (anyone or any company paying rent) will, in the medium or long run, pay less in space rent than they now pay;
  • The two-rate tax will increase new construction and rehabilitation at no long term cost to the taxpayer; many substantiate this claim;
  • The two-rate property tax will help curb a city’s revenue-losing appeals, which reduce building assessments;
  • The two-rate property tax is a powerful tool to end urban sprawl in the clean-and-green countryside.
  • Suppose then a city official says to you, “OK, I like the idea, but how do I convert our current, one-rate property tax to a two-rate property tax raising the same revenue for the city?”

Get out your laptop, and use the following calculations. At first glance, it may be daunting, but it’s just algebra. All are all derived from the following simple formula:

Revenue = Assessments x rate

Let’s give it a test drive, step-by-step, using the example of Erie, PA:

Erie, Pennsylvania, must raise $33.4 million in property taxes for 2021.

$33.4 million = Assessments x rate

Taxable assessments (the values of homes, businesses, vacant land, etc.) are $2.866 billion.

$33.4 million= $2.866 billion x rate

What’s the “rate?” By dividing assessment by revenue: $2,866,000,000÷ $33.4 million.

$33.4 million= $2.866 billion x .01165

The tax rate for Erie in 2021 is .01165, also known as 1.165%,  also known as 11.65 mills.
Try it at home; your results will not vary.

We add one more calculation to get the land value tax.

Calculating the land tax rate (p=proposed) when the building tax rate (p= proposed) is known (a small arbitrary percentage of the current rate; in this example, we are reducing the PTRc by 20%)  the citywide building assessments (BA) and land assessments (LA). Here are the two rates which will yield the same revenue for the city as the current property tax rate

LTRp = (PTRc – BTRp) x (BA/ LA) + .01165

Let’s return to Erie Pennsylvania, and try this step-by-step

0.018837= (0.01165-0.00932)*3.0845592+0.01165

To recap: 11.65 mills subtracted by 9.32 mills is multiplied by a Building to Land Ratio. Finally, you finish by adding the current tax rate of 11.65 mills. The result: proposed LTR is 18.837 mills.

How does that stack up to Erie’s need for $33.4 million?

Here are the numbers. We reached revenue neutrality (not entirely due to rounding).

This formula is the standard LVT used in US jurisdictions. However, several other methods exist for implementing a land revenue-based tax system. These methods have distinctly different revenue impacts to achieve equity and true tax progressivity.

LVT is a tool that supports existing economic development strategies.

  • Infill directed – frees lots for buildings
  • Compact – produce more efficient, consolidated units
  • Dense – incentive to build upward
  • Affordable Housing – lower incomes qualify for a loan
  • Distinctive Communities – invest in homes without a tax increase
  • Mixed-Use, Walkable – density draws stores, retail, and entrepreneurial activity

Are you interested in determining the tax rates in your municipality? CPTR will happily do it for you. Contact our outreach coordinator!

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2 replies
  1. David Harold Chester
    David Harold Chester says:

    A MORE STEALTHY GEORGIST CAT

    The Georgist cat is small and lean
    And often doesn’t get to be seen.
    It hides in the branches of an economic’s-tree
    So it takes a long while for you or for me,
    To appreciate its cute and original form
    That the landlords are so ready to scorn.

    The economic’s-tree has many fine branches
    (On which we contend, there are no free-lunches).
    Whilst the land-owning rich in the city all claim
    As bloated capitalists, that they’re not to blame
    For the gap that lays ‘twixt the poor and the wealthy,
    But oppose any tax to make our nation healthy.

    Have you heard the tale of a committee, that
    Thought to bell and get warning of a fat cat?
    But could not find a soul to apply this device,
    Because typically all were a council of mice!
    Our Georgist cat has a bell ready-fitted,
    (Which makes this analogy more to be pitted).

    This warning sound makes our ideals unwanted,
    For a new tax is how politicians get doubted.
    So the Georgist cat fails to catch any mice
    That pose as landlords, along with their vice.
    But how shall we silence the bell’s warning sound
    And quieten the news that our pussy’s around?

    Our Georgist feline is in serious error,
    ‘Cause its bell draws attention not only to whether
    Valuable sites can be ethically shared,
    But also the rent from a site is declared
    As the means to replace other kinds of taxation,
    Which obviously causes the landlords vexation.

    In the economic’s tree many other beasts lurk
    But are missed, after learning of Henry G’s quirk
    Through the cat-finder’s recently brilliant discovery.
    This writer seeks a new means for recovery
    From our politi-unacceptable claim,
    And stealthily project LVT once again.

    If we would but examine some more of the tree
    Alternatives are waiting there for us to see.
    Among them is hiding a far better way
    For an equivalent LVT effect, to stay
    In essence, without causing such evil offences
    To the landlords and their partitioning fences.

    When a property-owner decides to sell–quick
    The gov’ment buys its land, and not the public!
    Its occupant then leases it for a similar fee
    To the One-Tax of Henry George’s decree.

    Any buildings on-site should be sold as previously
    But without the land, on which the price grievously
    Had risen, with huge speculation in its advance
    That stopped entrepreneurs from having a chance.

    The cost of this land must be raised through new bonds
    Which the government sells and the public responds,
    ‘Though their interest-rate’s a bit lower than rent,
    Their returns are more stable than the average tenant!

    This process will take many years to complete–
    So its financial support is no great money feat.
    After the lease-fees begin to collect,
    Gov’ments can tax less, and firmly expect
    To pursue this policy without change, until
    All the lease-fees are site-rents in the Gov’ment’s till.

    With the land properly shared, the government sees
    That site development stays with the current leasees.
    Other taxes that cause so much trouble and hate
    Are scrapped, with great pleasure to all in the state,
    Except for some bankers and the tax collectors
    Whose actions no longer apply in these sectors.

    Land-rights will be shared through this simple device,
    By a fast-growing country that takes our advice.

    Reply
  2. David Harold Chester
    David Harold Chester says:

    It seems to me that the basic idea of a new kind of taxation is very unwelcome to most of the people who are expected to pay it even though the other kinds of tax which most of us pay would be gradually eliminated. So instead of trying to convince members of the public amd especially the land owners of how good LVT really is we should take a better policy which in the long run will achieve the same thing. That is what my poem is all about after (acording to Georgist psychology), we have seen the cat.

    Reply

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