Auros (auros) wrote,

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Learning from the pros...

I just had a long conversation with Cliff Cobb, the expert on Henry George and land/property taxes that I was referred to by a prof at Presidio. He kindly walked me through some of the tax structure issues that I'm hoping to persuade people to consider tinkering with. As an amateur enthusiast, I know I don't like where we are, but I've never been 100% certain about where we should be going. I'm enjoying finally putting together a "map" of the issues, even if it's still sketchy. *g*

It turns out that what I had been considering is not actually the Georgist land-tax; my idea would be a universal parcel tax -- flat per-sqft.

This concept (taxing based on property type) is similar to a model called the "split roll" property tax. As in "roll call" -- it splits the list of properties into separate sections. Different varieties of property get taxed at different rates (still as a percentage of value). My thought had been to use existing zoning law to split the roll, since we already have all the necessary information for that. Apparently Minnesota has a split roll system, but they have dozens of categories, the categories aren't tied to any other areas of law, depending on what you do on a property (even in compliance with unchanging zoning rules) its categorization can change... the system adds more layers of red tape for owners to deal with. While local zoning is non-trivially complex, and can sometimes be manipulated (e.g. by developers backing candidates), at least it's something that has been around for a long time and is reasonably well understood.

There apparently is a non-trivial constituency in CA (including some labor figures) who favor a split-roll system, which wouldn't be my first choice for reform. Still, I'm going to see about finding some of them and discussing common ground for a resolution. If all we're calling for initially is funding a study of the issues, to come back with recommendations on how to proceed, we can disagree over what we think the proper recommendations would be.

The Georgist land-tax is a "split rate" model, in which the rate for taxing the land itself is separated from the rate for taxing the buildings on the land (which, in technical terms, can include improvements that might not intuitively seem like "buildings": reshaping of terrain through landscaping, gardens and orchards, etc). George's proposal was to split the rates, and then set the tax on buildings to zero. One might think that, given that sales of properties always include both land and buildings, it would be very hard to separate these values out. However, apparently Denmark actually does this, and in some regards it's actually easier. For one, if you only care about land value, your assessor never has to go inside any buildings, and doesn't have to worry about features of the property that might be concealed by, or beyond the knowledge of, the owner. Also, since two identical sqft patches on either side of a property line should be worth basically the same amount, you actually end up building "topographic" maps of land value (with "peaks" in cities, wide "plains" in undeveloped regions, "ridgelines" following highways, etc). When you reassess, you can factor in the affects of major changes (e.g. new public transit hubs, like the BART stations that are going to be built from Fremont to SJ) on a mass basis, rather than one property at a time. Cliff said he thought that a modestly-funded task force (a few million dollars -- a very small amount in a multi-billion dollar budget) of economists and surveyors would be able to create full maps of CA over the course of roughly three years. Subsequently, it would probably be cheaper to maintain this kind data, on a year-to-year basis, than it is to run the current assessment process that has to account for buildings.

The two big arguments for a parcel tax are that a) it's incredibly simple, since the monthly tax is just the square-footage times the zoning rate (you'd only ever have to reassess a parcel if it was subdivided or merged, or its zoning was changed); and b) parcel taxes are not banned by Prop 13, so a state-wide parcel tax could be enacted by the legislature without a State Constitutional Amendment / ballot prop. Any proposal that tinkers with the property tax itself -- rather than zeroing it out and replacing it with a revenue stream unregulated by Prop 13 -- would clearly have to go to the ballot.

The argument against the parcel tax is that, depending on exactly how you set the rates, parcel taxes can end up being quite regressive -- people who can afford downtown-homes pay the same price as people with similarly-sized homes on the fringes. Also, while value-based taxes (whether on land, or land plus buildings) have the negative impact of potentially pricing fixed-income people out of their homes, the parcel tax, as Cliff put it, can "sterilize" the fringes of a city, because the land there (from which less-affluent citizens commute into the core) is inherently less valuable than similarly-zoned land nearer the core of the city. One question to consider is whether zoning laws can (or already do, in some areas?) account for this, by differentiating between urban-core zone types and fringe zone types.

For dealing with the pricing-out effect of value-based taxes, Cliff prefers expanding some already-existing programs that allow people on fixed incomes to defer property taxes until the property changes hands. We didn't get too deeply into the details of that, though -- I can see problems here; you might have a situation where a 60-year-old starts deferring taxes, lives to age 100, and accumulates a tax debt larger than the value of the property... Maybe at that point we just forgive the excess? And of course, this still isn't going to make the heirs happy -- they were expecting to get dad's house, and it turns out that it's now owned by the state and up for auction. (Of course, with the huge percentage of wealth people have tied up in their homes -- I think it's two-thirds, for an average family with the median income? -- and the decreasing security of pensions and other retirement assets, there's increasing pressure to tap that wealth through things like reverse mortgages. That leads to heirs not getting the house either.) This is an area I'll need to think about further.

I still think that there could potentially be wide, bipartisan support for some kind of change. You'd have to be ideologically blinkered not to see that Prop 13 is doing more harm than good. There is a small, concentrated interest that likes it -- property management companies, that own lots of land long-term and rent it out (apartments, offices, warehouses / storage space, etc). In this regard, their interests are in conflict with their tenants' -- and the tenants are rather more numerous; one just needs to get their attention. Add in the benefits to residential owners, and a lot of "younger" small business owners, and this seems like a pretty broad coalition.

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