Last
week, Jim Bacon’s column (“Taxula
Rasa”, May 19,
2003)
opened an important line of inquiry concerning
property taxes and consumption taxes. In this
edition of The Shape of the Future, we
expand on Bacon’s observations concerning
property tax outside the Clear Edge.
First,
what is a “Clear Edge?” Our use of the term
comes from Ed McMahon of The Conservation Fund.
Ed cites the need for a Clear Edge around urban
areas as a fundamental principle for creating
“better development patterns in Virginia.”
The concept of the Clear Edge is, however, as
old as human civilization and is immediately
evident to anyone who has visited historic as
well as contemporary urban and nonurban areas of Western
Europe.
In contemporary application, the Clear Edge might
be called, alternatively, the “urban service
district border,” the “urban growth
boundary” or the “inside edge of the
greenbelt.” Whatever it is called, the Clear
Edge demarcates the boundary between Urbanside
and Countryside.
Surprisingly,
despite dysfunctional
scatteration of urban land uses across the U.S.
landscape over 50 years, a rational place to draw a Clear Edge
is not hard to find around most of the Cores of
New Urban Regions. Likewise, a Clear Edge can be
located around urban enclaves in the
Countryside.
Bacon’s
column nailed down the rationale for taxing land
but not improvements inside the Clear
Edge. Owners of vacant land wind up paying a
larger share of the cost of providing urban
services, making the land more expensive to hold
for speculative purposes and encouraging
conversion of the land to its most
profitable use. By relying upon market
mechanisms to alter
economic behavior, the tax is far more efficient
than complex land-use codes at creating compact,
sustainable settlement patterns.
Outside
the Clear Edge, there are two options for the
property tax:
1.
Abandon
the property tax altogether and rely on user
fees and consumption taxes to pay for public
services
2.
Tax
the improvements rather than the land – the
inverse of tax policy inside the Clear Edge.
Abandoning the Property Tax
Outside
the Clear Edge
From a tax strategy perspective, a shift to user
fees for urban services outside the Clear Edge
makes a great deal of sense. Most functions of
contemporary state and sub-state governments,
even in so-called “rural” areas, are to
provide urban services such as roads, water,
sewer, fire, rescue, police and education. The
cost of providing these services is
significantly higher in scattered locations.
Charging
a user fee for services outside the Clear Edge,
based on the cost of providing those services,
would discourage the scatteration of urban land
uses. (See the ubiquitous Cost of Services Curve
documented in my book, The Shape of the Future.) Bacon’s use of
fees to allocate the true cost of transport --
congestion fees and weight-distance charges --
would serve as a model for urban services in the
Countryside.
Inverse
Henry George
The
concept of taxing only improvements is anathema to champions of Henry George, the
influential 19th century theoretician
who advocated a tax on land, not improvements,
upon whose concept the idea of taxing land inside
the Clear Edge are based.
However, “Inverse Henry George”
applied outside the Clear Edge may provide a
transition to a pure fee-for-service system. It
would be easy to administer, and it would change
economic incentives – making landowners think
twice before scattering urban land uses over the
Countryside -- though perhaps not as
dramatically as the fee-for-service system
would.
I
am not convinced that an “Inverse
Henry George” tax system is a good idea, but I
advance it here to put the issue in sharp
focus.
If
one were to apply “Inverse Henry George”
outside the Clear Edge, the first step would be
to find an equitable way to treat land
improvements that support economic activity such
as farming and forestry, as opposed to scatering
urban uses such as subdivisions and retail
clusters. I would suggest treating barns, silos,
fences, wells, irrigation ditches and other
improvements as capital investments, just as
tractors, log skidders and forest management
software are now. The “property tax” on a
farmer’s land would be on dwellings and
recreational improvements not required for
productive use of the land. Planners already
make this distinction for land-use control
purposes on a regular basis.
The
Objective of Property Taxes
Outside
the Clear Edge
The
primary goal of any tax on property outside the
Clear Edge should be two-fold:
Many
local governments have altered their tax
policies in an attempt to achieve the latter
objective. Some low-density jurisdictions have
designated 70 percent or more of their land area
to land-use categories -- agriculture, forest
and open space – that qualify for special tax
treatment. Unless these tax zones are coupled
with preservation easements, however, most
observers see these zones as encouraging
long-term land speculation. Even conservation
easements provide for some future land
subdivision. Relying on land-use tax valuation
to preserve Countryside resources simply is not
prudent.