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Don’t neglect ‘economists’ favorite tax’

Grand Forks Herald

Conservative economist Milton Friedman called it “the least bad tax.”

Liberal professor John Kenneth Galbraith said the tax “can also play an important role in the redress of these problems,” which include “declining housing affordability, growing economic inequality and environmental decay.”

For that matter, Adam Smith — the founder of modern capitalism — was a fan, as were Winston Churchill, John Stuart Mill and David Lloyd George.

What is this tax that has had such a diverse and interesting lineup of supporters over the past 200 years?

The answer is the land tax, a tax imposed on the unimproved — meaning, empty of buildings — value of land.

It’s unlikely that Gov. Jack Dalrymple’s property tax reform commission will revive this old idea. After all, there are reasons why land taxes so seldom have been put into place, despite the theory’s long pedigree.

But as the commission gets to work, it’s worth recalling this unusual option, in part because elements of it actually might prove useful. And if commission members suggest there are no fresh ideas under the tax-reform sun, North Dakotans might remind them that, hey — there’s always the land tax.

As mentioned, a land tax is imposed on the unimproved value of land — and that is both the strength and weakness of the tax.

The strength is that land taxes strongly encourage development, because the values of any buildings or other improvements don’t get taxed.

So, no longer would owners face higher taxes for quality construction and enjoy lower taxes for letting their buildings deteriorate.

The weakness is that if a land tax is to replace the revenue brought in by a property tax, then the land tax likely must be quite high. Furthermore, the owners of vacant land, parking lots and other less-improved parcels would see their taxes rise.

Pennsylvania has used a hybrid called a “split-rate tax system” with some success. In a split-rate system, land value is taxed at a significantly higher rate than improvements, thus bringing many of the advantages and fewer of the weaknesses of the straight-up land tax.

On the Internet, case studies and other reports on the land tax are easily available. Here’s hoping a few commission members take a look and see whether the idea deserves its rep as “the economists’ favorite tax.”ta