[Mpls] Land Value Tax

[Carol Becker]

Kurt Waltenbaugh asked about a property tax based only on the most recent 
sale price and no property appreciation.  How he proposed for it to work was 
the following:

...if I purchase a house for $75k, invest $50k into remodeling, and have 
estimated appreciation gains of $25k - I am only taxed at the 75k rate, 
until I sell the house...

I have one word for Kurt: California. Possibly the most screwed up property 
tax system in the country.

To rip from Wikipedia:  "Under Proposition 13, the real estate tax on a 
parcel of property is limited to 1% of its purchase price, adjusted for 
inflation, until the property is resold. There is a maximum 2% increase 
allowed in the assessed value per year, and property is reassessed when 
additions or new construction occur. In addition, assessed values can be 
temporarily reduced if the value of the home drops below the amount paid."

What have been the impacts of Prop 13?  Prop 13 benefits the elderly who 
have held onto their properties for a long time and penalize people trying 
to get into the housing market.  A severe shortage of affordable housing has 
occurred.  Corporations benefit as they are able to play shell games among 
their various businesses where they can transfer property from business to 
business without triggering the increased taxes.

Also local governments are not able to raise taxes to pay for needed 
services.   So in California governmental services are funded to a maze of 
fees and assessments, much worse than St Paul.  (a small jibe at my 
neighbors to the east where they call taxes "fees".) J Also cities have had 
increasingly had to turn to sales taxes because they can't get their 
necessary funding through property taxes.  The result is that a high retail 
place like Roseville would be a great place to live but a low retail place 
like Columbia Heights wouldn't have a chance.  Cities end up in fierce 
competition to attract businesses, which means cities provide large 
incentives to lure businesses, many which provide unnecessary subsides to 
businesses.

Also this has been bad for poor people.  Poor people with less stable 
incomes end up buying and selling property more frequently, which means 
taxes tend to be higher on lower value homes.  So you can have a poor person 
who just bought a home paying substantially higher taxes than a older person 
who has stayed put.

In short, it has been a disaster of tax policy.  The property tax in 
practice is strongly regressive; there little to no link between taxation 
and wealth, the incentives in the system are not what you want to create a 
healthy community, etc.  Not a good way to go.

To read more about Prop 13: 
http://en.wikipedia.org/wiki/California_Proposition_13_(1978)

Carol Becker
Longfellow
Future Member, Board of Estimate and Taxation
Geek