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Could this One Weird Old Change in Tax Structure End Our Class War?
Scott Lucas | Photo: Courtesy Wikimedia Commons | January 23, 2014
Everything you need to know about land taxes.
Could there have been a way to sidestep the tech and gentrification fueled class struggle brewing in San Francisco staring us in the face the whole time? That's what Noah Smith, a professor of finance at Stony Brook, has proposed this morning. It's called a land tax, and the proposal has been floating around for more than a century. (George's ideas even helped inspire the game of Monopoly) Maybe it's time for a closer look.
A land tax is a pretty simple, if unorthodox, idea. Instead of basing our property taxes on buildings, base the tax on the land itself. So if you owned a plot of soil, your tax assessment would be calculated based on the size of the footprint, not the size of what was built there. The idea was worked out by a 19th century political economist named Henry George, who actually spent lived here in San Francisco (and for a while was the editor of his own newspaper, the San Francisco Evening Post.)
George's basic idea was this: location, location, location. The value of real estate is tied to the place it happens to be far more than it is tied to what is built there. That's why apartments in San Francisco—where everyone and their cousin seems to want to live right now—can charge such high rents for, let's face it, what are in some cases pretty lousy buildings. (Imagine what that studio with a hot plate and a Murphy bed would go for if it were plopped down in Wichita, for example.) So that means that the taxation ought to be based on the value of the land, which in our case, is stratospheric.
What would a such a plan look like here in San Francisco? For the 2014 Fiscal Year, the city expects $1.2 billion in property taxes. We have about 150,000 acres of land. Ignoring land uses like parks or roads, a revenue-neutral land tax would ballpark around $8,000 per acre per year. It wouldn't matter if you put the Transamerica Pyramid there or a Dunkin' Donuts.
George's theories used to enjoy relatively widespread popularity. In fact, our very own Willie Brown introduced bills in the Assembly twice in the 70s to introduce a Georgist tax model. They didn't pass, and soon after Proposition 13 dramatically reshaped property tax law in California. But even moderate liberal economists like Joseph Stiglitz and Paul Krugman have defended forms of Georgist land taxes. How many others times do you get to quote Krugman to beat up on landlords?
Besides, this is the Bay Area. If we hadn't been paying serious attention to strange ideas from unexpected people, Steve Jobs never would have had a career.