By Cathy Abene, Minneapolis Park and Recreation Board President
As a three-year member of the Board of Estimate and Taxation (BET), I read Carol Becker’s recent article on a land value tax (LVT) potentially being proposed by newly elected BET member, Eric Harris Bernstein with great interest.
I am still learning about the idea, but Ms. Becker is absolutely correct on a fundamental point: in government taxing and spending, there is no free lunch. The city first determines its spending needs and then sets the total property tax levy accordingly. Taxes are distributed based on each property’s share of the overall assessed taxable value. An LVT would not reduce the total amount raised—it would merely shift who pays more or less.
In addition to the implementation challenges Ms. Becker highlighted, consider how it might play out in residential neighborhoods with higher land values. In southwest Minneapolis where I live, for example, many single-family lots are similarly sized (often 40 feet wide), so land values on a given block are relatively uniform. Under the current system, the condition and size of improvements—larger homes in good repair versus those that are smaller or more modest—significantly affect the total assessed value and thus the tax burden.
A pure land value tax would remove that adjustment for improvements, potentially increasing the relative share paid by homeowners who do not own larger, updated structures—while benefiting those who do. Any tax shift must be evaluated carefully for unintended consequences.
I remain open to ideas that encourage efficient land use, but practical implementation and fairness to residential taxpayers must come first.
Cathy Abene, Park Board President
“A pure land value tax would remove that adjustment for improvements, potentially increasing the relative share paid by homeowners who do not own larger, updated structures—while benefiting those who do.”
This is a framing or status quo fallacy. The point of LVT is that government should be financed from the monopoly profits for owning real estate rather than out of people’s paychecks or the roofs over their heads. Consequently, it’s fair for landowners of equally valued parcels to pay the same tax, and the tax code should not penalize one for improving their property over the other as it currently does.
The whole property tax system is a Nineteenth Century anachronism that should be totally abolished. Unlike when the economy was almost entirely about agriculture, the amount of land and buildings most people own in the 21st Century has little to do with their income or ability to pay taxes.
Here are a couple ideas for replacing or at least ameliorating the property tax’s arbitrary burdens and obscure administration:
1. Abolish and totally replace it with local piggy back sales taxes on both goods and services. We already have a slowly expanding system of piggy back local sales taxes in Minnesota in those localities who have requested it.. It’s time for the Legislature to make it universally available to local governments and have them use it in place of the property tax.
2. Switch to the California system of basing the tax on the price you actually paid for your property for as long as you own it. This is a objective, readily and publicly known number that can be verified easily. This would eliminate the arbitrary nature of the county/city assessors’ estimates, the invisible and arbitrary appeal process and the whole administrative bureaucracy. The next owner would pay based on their purchase price.
Since Americans move frequently, the tax base would continue rising, but only in the amount buyers have shown they can afford. City councils, county boards and school districts could still set the property tax rates that they apply to the base to raise the revenue they and the voters think should be spent. The legislature could still have a system of classifying properties based on their nature and use such as residential vs industrial vs office vs farm, etc.
Older people and long term residents would not have to worry about losing their homes. Buyers would have assurance that they would probably be able to afford the tax as long as they owned the property. The property’s increased value would be taxed by the state’s existing capital gains and inheritance taxes when the property was finally sold. The legislature could distribute that value gain revenue as local government aid if it wanted to do so.
Some common sense suggestions. But the politicians really don’t care about tax rates unless they get voted out. Remember, the CA system came about due to tax payer revolt in the form of voter Prop 13 in 1978. Probably time for something similar in MN.
As usual, Abene completely misses the point. She is correct there is no free lunch, but the park board is focused on the revenue side of the equation, not the setting of the ‘spending need’. In these times practically everyone is trying to spend less and more wisely. The MPRB needs to focus more on that for needs, not all the wants they keep authorizing.
“there is no free lunch” <-Any tax change has transitional issues, but unlike other taxes, there is zero excess burden associated with Land Value Taxes, and the tax is 'capitalized' into a lower selling price of land. Thus, the tax is offset by a lower purchase price. This is very different from other taxes, but to those that are unfamiliar with the economics of tax incidence, they might believe that all taxes have 'costs'. The reality is, land value taxation is well recognized as fairly unique in this respect.
I'm not sure why someone keeps posting about the legality of uniformity clauses. The efforts of Duggan were intentionally designed to give local governments the option to enact special taxation that allows land and improvement to be treated as separate asset classes.
The capitalization effect—where the present value of future LVT payments gets baked into a lower upfront land purchase price—primarily benefits future buyers rather than current owners. For existing landowners who bought at pre-LVT prices, introducing the tax effectively reduces the resale value of their land, amounting to a wealth loss. Any shift to this system would need broad support from voters and property owners who must see the overall societal benefits as outweighing the personal hit they would take in the transition. The original article’s point stands: To keep the total property tax revenue the same size, an LVT would redistribute the burden in ways that may not be equitable on a block-by-block basis—especially in residential neighborhoods where lot sizes (and thus land values) are uniform, but home sizes and conditions vary widely.
State law requires taxation based on value —— land and building.
Great piece! I hope any tax proposals are studied for unintended consequences.