Thursday, September 28, 2006

Henry George and Homewood

I was reading the Elwin Greens journal/blog about Homewood on the PG web site the other day. He may not realize it, but his September 22 entry makes a very direct argument for the two-tiered property tax that used to be in place Pittsburgh. He discusses how some of the properties in his Homewood neighborhood have been sold and resold to out of city landlords who do not seem to show much interest in improving or using them. The historic reason for the land tax in Pittsburgh was to provide strong disincentives to this very type of speculative land holding. Given the low price of property in some areas of Pittsburgh, and the changes going on.. I could be convinced that there is the same type of behavior going on today. Could a split tax, or some variant thereof, be used to deal with the problem?

Elwin’s post is not the only thing that has prompted me to think more about Pittsburgh’s erstwhile split tax recently. Many have forgotten, probably more never realized, that the City of Pittsburgh had until recently a split property tax. A split tax taxes the value of land at a far greater rate than the value of the structures built on the land is taxed. Skipping the lecture that is probably required to explain why this was implemented, it basically is a straightforward way to induce higher density development on land. Other names for this type of split tax include the Two-Tier tax, the single tax or the Land Tax which probably describes the most extreme version of this type of tax where all of the tax is on land and none is on structures… or sometimes a George tax named for Henry George who propounded this type of tax in the late 19th/early 20th century. As hard as it is to believe, Pittsburgh was once a hub of progressive activity and implemented a split tax in 1916 and remained in place for the remainder of the century.

I personally think there are a lot of reasons to think about a new form of a split tax. Many dismissed the split tax after the mass reassessment in Allegheny County in 2001. Why that happened would take a tome in itself to discuss. I personally believe that by the 1990’s the split tax was de facto ineffective because of assessment practices. In Pittsburgh land was taxed at a rate 6 times that of structures. But I also think that most residential structures were assessed such that land was typically 1/6th of the value of the entire property. Thus the de facto difference between a split tax and a flat tax was virtually nil. What happened was that the mass reassessment put in place some more realistic values for the value of land which resulted in some pretty big changes in some tax bills. It was that 'sticker shock' that got some people legitimately upset.

Lest those same people get mad at me. I think there are some reasonable ways to reintroduce a split tax that does not impose undue burdens on current property owners. I am really partial to the abatement program put in place in Philadelphia which gives a nearly universal 10 year tax break on the value of any residential structure or improvement in the city. Some consider the program responsible for a lot of inner city revitalization in Philly and is really quite similar to a land tax. It has the advantage of not penalizing those who are long time homeowners in any way yet still gives incentives to improve and use land.

Anyway.. long enough for one post. I have some more thoughts I will save for later.

8 Comments:

Anonymous Anonymous said...

I could assume a split tax policy could be instituted. Just like a rational assessment system could be instituted. Both assume rational actors. What is needed along with good tax policy is the good political/game strategy that will help get the good tax policy instituted.

Chris? Anyone? I'll buy a beer/pop/coffee for the person with the best answer.

Contest ends midnight, October 6, 2006. Void where prohibited by law. May cause drowsiness and seizures. Do not operate heavy equipment while commenting.

Thursday, September 28, 2006 9:38:00 AM  
Blogger O said...

What was the question Mark? Is it "how do you make people behave like rational actors" or "how do you get Pittsburgh to reinstitute the land/building split"?

The partial answer to the second question, by the way, is that the chief proponent of the single tier system recently died. Perhaps you saw something about it on the news.

Saturday, September 30, 2006 12:06:00 PM  
Anonymous Anonymous said...

"O",

How many more people must die before we have sane tax policies?

I think, though, we need to find better tactics than killing off or outlasting our adversaries.

I was hoping to get a two-for-one: rational assessment system and land/building split. But since it's only one beer, I'll settle for the one:

What are the best tactics for reinstituting a land/building assessment system that punishes speculators and rewards investment?

For those who answer "Well, that depends . . ." go back to your jobs as programmers and house painters.

For those of you who are keeping score, "O" is winning. So all you Henry George fans in Pittsburgh, don't start dying on me.

Saturday, September 30, 2006 12:49:00 PM  
Blogger O said...

Despite the part of my job that includes both house painting and programming (this is not altogether untrue), I will begin this answer with "It depends..."

But more like "It depends on the rationality of the citizens of the City of Pittsburgh to clearly see that the short term tax relief that was given by the elimination of the two-tiered system actually creates a long term problem as it discourages investment in poor neighborhoods."

For example, if I was a rational person living in, say, Larimer, why would I want to invest money into my home, if it's just going to increase my taxes by a seemingly random amount.

It depends on the ability of City Council to take their collective thumbs out of their butts. Personally, if I was City Council, I would see this as an ample opportunity for Pittsburgh to AT LEAST provide a less subjective valuation of the real estate taxes.

Buildings can be valued at whatever the appraiser decides to look at, but land is far less subjective, and more likely to provide both a stable, predictable revenue stream for the City and a stable and predictable expense for the homeowner.

Of course, this is not nearly as sexy as downtown WiFi.

It depends on the business community caring about more than branding initiatives. I'm actually surprised that the business community *cough* The Conference *cough* hasn't taken this one up as it would help their bottom line.

So my answer: (1) education, (2) business/citizen push, (3) council push.

Saturday, September 30, 2006 1:50:00 PM  
Blogger O said...

P.S. I hear there's some really cheap land on route 65 in Kilbuck Twp.

Saturday, September 30, 2006 1:51:00 PM  
Blogger C. Briem said...

for Mark. let me rephrase the question put to you. Am curious what defines a 'rational' tax policy. High? Low? Progressive? Regressive? Can't begin to answer the question until that is answered.

But something for O to think about. When you say: Buildings can be valued at whatever the appraiser decides to look at, but land is far less subjective, and more likely to provide both a stable....

I actually think it is the other way. Structures ought to be valued at cost. It is the value of land that is far more subjective in that land captures the capitialized value of place. Now whether that is what George meant may be another question.

If that seems strange... consider a thought experiment. Call it Shroedinger's trailer. Take two identical trailers on two equally sized lots: one in Shadyside and one in Braddock. Which parcel is worth more? Is the delta due to the value of the trailer?

Saturday, September 30, 2006 11:25:00 PM  
Blogger O said...

Chris, let me rephrase or clarify part of my response:

In my experience, the valuation of buildings is, at best, inconsistant often at the discression of the individual assessor.

Monday, October 02, 2006 7:40:00 AM  
Blogger C. Briem said...

in the past that was undoubtedly true.. but fyi I can attest that the feedback based Sabre methodology and the CLT methodology that followed left no role for (human) assessor input whatsoever. In fact, despite state law, the initial Sabre run did not even include a drive by quality check by an actual human assessor.

The CLT methododolgy is not much different in that regards and is based on a more explainable multiple regression methodology. but again, no role for an individual assessor to make an adjustment based on judgement per se.

Now what is happening with the appeals is clearly another question. and this says nothing about the mass assessments themselves being accurate or even unbiased... but those are topics unto themselves.

Monday, October 02, 2006 7:55:00 AM  

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