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.
For all of
the reasons explored in the background papers
available here at the conference website and
others to be discussed at the conference, Iowans
are encouraged to begin the process of Tax
Shifting -- removing the burden of taxation from
property improvements, cash flows and commerce,
relying increasingly on the taxation of land
values (i.e., the annual rental value of land,
whether in the cities and towns, agricultural or
otherwise). The effect of such a Tax Shift is
potent. Owners of land are pushed by increased
taxation to bring land to its highest and best
use in the market. They are rewarded for doing
so by lower and lower taxation of the
improvements they make on the land and the
revenue earned by the sale of goods and
services.
Public policy analysts, activists and
elected officials must work together toward the
goal set forth by economist Arthur P. Becker in
his remarkable paper, Full Employment Without
Inflation.
What many of the conference participants
bring to this discussion is a good appreciation
for how land markets operate and a part of
economics for too long ignored: the operation of
rent, which political economists described as
the claim on production made by those who
control land in our society. A few of these
political economists and a representative number
of economists today, argue that the rental value
of land is rightfully and ought to be the
primary source of public revenue. Why? There are
many reasons, but an important one is that the
rental value of land increases not because of
what an individual landowner does but because of
the infrastructure created by society that
creates locational advantages and by the
aggregate development that brings people to
locations.
Every parcel of land has a potential (i.e.,
an imputed) rental value. This value may be low
or high, depending upon many factors associated
with locational advantages. When the annual tax
paid by the landowner is less than the imputed
rental value, the market capitalizes this
imputed income into a selling price for land. As
the demand for land increases, and as the rental
value of land increases, a community's failure
to respond with an increased rate of taxation on
land gives a clear market signal to speculators
that investing in land -- with no intent to
develop that land to its highest and best use --
will not not be penalized. As a result, large
amounts of financial reserves are diverted from
productive use and channeled into land
speculation. Thus, land ripe for development is
held out of the market, driving up the price of
land further, allowing land owners to claim a
higher and higher percentage of the value of
what is produced, of the wages earned by workers
and the businesses who are forced to pay higher
and higher lease fees for space in office
buildings, warehouses and retail stores.
At some point, cracks inevitably occur in a
region's economy. Typically, the first signs
appear in the commercial real estate sector. New
buildings find it increasingly difficult to find
tenants willing to pay for space at the price
required by the developer to cover debt service
and earn a profit. The developer, after all, was
required to pay an enormous entry fee to the
previous landowner just to gain access to the
site. Without key anchor tenants, developers
begin to default on construction loans. The
banks that provided the construction financing
based on inflated appraised values on the
property and on optimistic forecasts of cash
flows, foreclose, take over partially empty or
uncompleted buildings, put the buildings up for
sale (at a time when the demand for such
properties has disappeared) at "fire sale"
prices, write off heavy losses, and (in far too
many cases to list) quickly end up insolvent and
forced to close their doors. When the land
market busts, regional recessions occur as night
follows day.
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| An
Act Concerning Land Value Taxation
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| Read the
text of
Raised
Bill No. 5069, introduced into the
Connecticut General Assembly during the February
Session, 2002. |
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