Land Value Taxation as a Method of Financing Municipal Expenditures in U.S. Cities

To what extent could local governments employ land and property taxation to recoup a portion of these land values for financing local services and infrastructure? Richard W. England tackles this question and explores the possibility of shifting the conventional property tax imposed on both land and buildings to a pure land tax in selected U.S. cities.

Although economists have long recognized that taxing immobile factors, such as land, creates fewer deadweight losses than does taxing mobile factors, such as labor and capital (Mills 1998), England points out that the current practice of many U.S. municipalities seems to be moving in the opposite direction—more emphasis is being put on taxing income sources and transactions (see also McGuire 2001). He advocates revenue-neutral tax reform that would tax land more heavily than improvements. He also proposes replacing local business and personal income taxes and sales taxes with a higher land tax.

In assessing the feasibility of a pure land tax system, England examines the property tax structures of five U.S. cities: Chicago, Milwaukee, Philadelphia, Phoenix, and Washington, DC. He finds that only one of the five cities, Phoenix, could shift from the current property tax to a single land tax without raising the tax rate to a confiscatory level with no fiscal loss.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2006 and is Chapter 8 of the book Land Policies and Their Outcomes.