Make Scranton's Dedicated Tax a Land Tax - Keystone Politics

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Scranton?s new borrowing is conditional upon the city paying back creditors with a dedicated increase in the real estate tax over 10 years.

Real estate is two things ? a piece of land, and a building that sits on the land. Each of these two things has a value. There?s the appraised value of the actual structure, and then there?s the speculative value of the piece of land.

Currently Scranton taxes these two values like they are one thing. There?s one millage rate applied to the total value of the land + structure. land at a lower rate than buildings ? 20.065 for land and 92.263 for improvements to the land. Altogether it?s 112.328.

Why does this matter? When you tax some activity, you are discouraging it to some extent. Real estate taxes like Scranton?s are stupid because they discourage building and growth ? exactly the things the city needs more of if it?s going to get out of the fiscal hole.

More ratables on the tax rolls would reduce the debt burden by growing the tax base, but the real estate tax on property improvements discourages new building.

Alternatively, taxing only the land value would discourage land speculation, and encourage new building. Landowners with vacant lots or blighted properties would pay more in taxes, as would landowners with a high land-to-building ratio. People with small yards, or multi-family buildings that take up most of the lot would see their taxes go down.

Those millage rates really should be flipped around ? 92.236 for land and 20.065 for improvements. And if I ran the zoo, I?d take it down to 0 mills on improvements and 112.328 on the land.

Switching to a land value tax to pay back the debt would require Lackawanna County to reassess to get up-to-date values for land and buildings (unpopular!), but the end result will be a universal tax abatement on property improvements (popular!), and a more pro-growth tax regime from which to pay back the city?s debts, with less counterproductive drag on growth.

(Thanks to Gary Lewis for the correction on Scranton?s split rate real estate tax)

Source: http://www.keystonepolitics.com/2012/11/make-scrantons-dedicated-tax-a-land-tax/

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