Land-Value Taxes in the Real World: Split-Rate Taxes

Tyler Cowen is skeptical about the possibility of a pure land-value tax, even though it has many theoretical benefits. In particular, Cowen points to a host of what we might call “Public Choice NIMBY” issues. In the real world, the same political forces that drive all of the current urban planning issues would either prevent it from being implemented at all, or prevent it from actually being implemented the way Henry George would have wanted.

I grant all these objections, but I do note that there have been multiple YIMBY successes in recent years, particularly in California where NIMBY forces are probably the strongest in the country. Still, if Cowen is mostly correct, are there any real-world options that offer some of the benefits of a LVT? In short, the main benefits are that the deadweight loss of the tax is very small, and that land is more likely to be used for its highest-valued use (which in many cases will mean more density, though this intersects with zoning policy).

Yes. For the clearest example, look to Pennsylvania. Cities are allowed to implement what is called a “split-rate property tax.” It does not only tax land, as a pure LVT would do, but instead taxes land at a higher rate than improvements. A ratio around 5:1 is typical (meaning land is taxed at 5 times the rate of improvements), though some cities have been as high as 26:1.

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