Land value taxation is impeded by the same national sentiment that has reacted so strongly to the Supreme Court’s Kelo decision.
That decision has sparked an intense national debate over the private property versus land use regulation and, ultimately, over the ability government to define a “public purpose.” State legislatures across the country are in a race to the altar of property over who can most quickly and most completely“protect” private property and, especially homes, from eminent domain. On its face, this“movement” has the potential to upset the often indelicate balance that represents local land use planning in the United States.The Kelo decision did not expand the jurisprudence of eminent domain beyond the settled practice of the past fifty years.
The Court has not spawned some new demon that will devour our homes unless elected officials come riding to our rescue. Even conservative proponents of judicial restraint and so-called “originalism” (the conservative constitutional theory that the Framers’ intent should govern us unless we explicitly amend it) acknowledge as much. For example, Jonathan Adler wrote in the NationalReview, “While the Fifth Amendment clearly requires compensation for takings of any sort, there is little evidence the Founders sought to limit the purposes for which eminent domain could be used.
”What is truly being attacked here is not eminent domain but our faith that government is capable of defining a public use. Eminent domain is our rightful power to declare that public use will trump private use. And because Americans are a fair-minded and generous people, we have written into our very Constitution the protection that the exercise of that rightful power demands the just compensation of the private owners. And because Americans guard their liberties so dearly, we further protect private owners inour state constitutions and laws (Pennsylvania certainly does this) by requiring public participation, a well-defined planning process to determine public use, an appeals process after decisions have been made, and that eminent domain be used only as a last resort.
Eminent domain applies only to holdouts who insist their private use should trump the public. The 9 owners in Kelo were holdouts who sued after dozens of other owners had sold their properties to New London. No rights are absolute. You can’t yell “fire” in a crowded theater, you can’t sacrifice infants in free exercise of your religion, and you can’t prevent the community from benefiting from a public use for which they are willing to pay you in full. The use of eminent domain must be well regulated and always demands just compensation. But an assault on eminent domain itself is an assault on our ability to govern ourselves. If we can’t define a public purpose, then all government action is illegitimate. It’s just another attack on the idea that government can improve the lives of ordinary people and their communities.
These matters lie at the heart of understanding the debate (or its absence) over land value taxation. While much of that debate focuses on LVT’s impact on land use (the efficient allocation of resources) and on public finance (the equity and sufficiency of generating revenues), another aspect is important conceptually and rhetorically. Who is entitled tothe property interest that economists call “location rents”, which constitute a surplus value? Youngman (1997) puts it this way:
Much of George’s appeal to fairness rests on this unearned nature of land value. If a land tax is to be justified on these grounds, the very meaning of that term requires fresh scrutiny…The profound difficulty of justifying land taxation through a consideration of property rights makes the absence of such discussion understandable. Yet without it, public perception of land taxation will in all likelihood continue to be one of fundamental unfairness
This question can easily be placed in the context of a broader discussion among legal scholars. For example, Joseph Singer has criticized the narrower conception of the “ownership model” of property:
We need to escape the romance of ownership; rather than blindly following conventions about who the owner of property is, we should focus on the interests asserted by those who claim they should be entitled to control various aspects of the property, and determine, on the basis of the appropriate normative criteria, who should have presumptive control of the entitlement in question and who should have the burden pf persuading us to shift the entitlement.
I have argued that the ownership model fails us because it obscures important facts about the nature of property and the necessary tasks of property law. It suppresses the tensions that exist within the concept of property and within the institution of property as implemented in law. It suggests that we award presumptive control over property to the person conventionally denominated its owner and place the burden of persuasion on all other claimants to rights in the property—a move that, as we have seen, is not always appropriate. It mischaracterizes the relationship between property and regulation by failing to recognize that government actions conventionally decried as regulatory are often essential to bring property into existence or to establish a form of property that coheres with our sense of which kinds of human relationships are consistent with respect for human dignity in a free and democratic society.
While it he has much bigger fish to fry, it is easy to discern in Singer’s analysis a potential ally of those who would redefine who is entitled to the surplus values generated by location rents.
The Kelo decision provokes what may be the most prejudicial aspect of this larger debate, centered as it is on “hearth and home”. Could it be that land value taxation is a more amenable issue on which to debate a reconsideration of property rights? Regardless of the specifics, any such reconsideration will engage the broad public, sooner or later. Kelo has also illustrated this reality. Hence this study: we need to better understand the argumentation applied in these debates where they do occur. And on the subject of land value taxation, that leads us to Pennsylvania.
There are several answers offered to explain why LVT is not widely adopted.
First, many U.S. homeowners have grown comfortable with the perceived role of land speculator. They display the attitude that many Georgist economists ascribe to farmers: their land is private property in the form of retirement “savings” that they expect to be able to cash out. In the current urban setting, this often carries an additional ethical value: the fact that homeowners bought (or never sold) back during a time of flight from cities to avoid redistribution and/or racial integration makes the increment (especially of the past decade) an earned reward for “doing the right thing”. This is consistent with the kind of arguments advanced by Fischel (2001) with his “home voter hypothesis”.
Second, even if the case could be won for the public recapture of land rent (the classical argument of natural opportunities, unearned increment, and so on), the next biggest barrier to LVT is that it represents the taxation of unrealized capital gains (Netzer 1984). While that fact is the very mechanism of LVT’s aggregate benefits, it appears to generate enormous resistance among voters. It is one thing to write, “Basically to make a city go, you want to be rid of owners who see real estate mainly as a cash cow for their retirement and replace them with owners who see it as a vehicle for their enterprise…” (Gaffney 2001). It is another thing entirely to build a majority coalition around that sentiment, as compelling as it may be.
Third, there is too little discussion of the un-taxing of other sources (land improvements as well as income and consumption) in the call to tax land more heavily (Harris 2003). Philadelphia has been in the midst of an ongoing tax reform movement for several years now, some of which has centered on a land value tax. The debate has focused mainly, however, on reducing the city’s burdensome wage tax. Advocates of the latter have often noted that the revenue losses from a wage tax reduction would be partly offset by rising property values (through capitalization) and thus property tax revenues. These arguments have intersected with a near-revolt over the property assessment system in Philadelphia, which itself conflates bad assessment practices with the problem of taxing unrealized gains. The whole tangle has confused the potential costs and benefits of shifting local tax bases.
Fourth, it is not clear that the problem is simply one of information—there may be compelling interests at stake that prevent widespread adoption of LVT. As England (2004) has suggested, the progressivity of a shift from the taxation of improvements to land must be demonstrated not simply assumed. It may well be necessary to compensate some owners both for transitional and ongoing impacts in order to assemble of political coalition capable of implementing (and maintaining) a split-rate tax
https://www.lincolninst.edu/sites/default/files/pubfiles/1275_hughes_final.pdf