ViewPoints11

Property Tax:

One way we've rigged the system against wildlife

 

We have a tendency to look at land-use in America and imagine that we are seeing the hand of the free market at work. Some people lament the constant loss of pastoral lands turning into what Natalie Merchant has sung about as the “constant sprawl of concrete, that is making it's way, a thousand miles a day” as an inevitable result of people doing what they want to do in a free market.

It may well be inevitable in the long run, and it sure has a lot to do with market forces, but is it really the straightforward result of market forces, or are there subtle and not-so-subtle distortions of the market at work?

Here's a juvenile female Cooper's Hawk at 212th in Kent, land that has long ago been converted to warehouses. painting by Ed Newbold

Consider the property tax:

 

Whenever you see a nice bucolic field with a for-sale sign on it, you are seeing a situation that the property tax was intimately involved with. The seller would have had to make yearly property tax payments on the land were they to decide to try to keep it. But what is the property tax? It's a tax on wealth, but It's a tax on only one type of wealth.

 

 

Look at the hypothetical Pie Chart of personal wealth above:

This tax arbitrarily singles out only one type of wealth. It's almost like a tax on yellow cars that lets white cars off the hook. Because we aren't taxing all wealth but one almost randomly chosen element of wealth, we are distorting the free market. We are advantaging every other type of wealth over real estate wealth. This isn't good for the market, as it increases inefficiency

 

 

The Historical Roots of a Market-distorting Tax

(under construction)

The Property tax of today began it's life as a wealth tax. Uniformity Clauses were passed into most state's constitutions between the late l600s and the end of the 1800s that mandated that all a person's wealth should be taxed at a uniform rate. But collection of taxes on non-real wealth proved politically and practically impossible and was abandoned bit by bit in every state (West Virginia may still hold to a kind of wealth tax) . Demographic changes that occured with the industrial revolution meant that a the amount of land a person owned was no longer the best determinant of his or her overall wealth. Land-rich but poor is an increasing reality for many in these times when direct products of the land amount to a smaller and smaller portion of the GNP.

 

 

 

 

picture of wildlife, say songbird, soon

 

But there are real victims here, not just wildlife, but let's consider wildlife first.

 

Consider the land this bird needs to produce young each year. If it's privately held, (and it usually is since by and large government owns high elevation or more arid land with lower natural productivity,) it has to produce money yearly to fund government. If the same person who owns the land sells it and puts the proceeds into stocks and bonds, they won't have to produce one red cent to fund government. It's not hard to see how unfair the property tax is to any kind of wildlife habitat.

 

Songbirds can't nest in stock certificates, they need real estate.

 

 

 

Activists and sincere politicians trying to solve this problem have enacted programs that ameliorate the negative effect of property tax on privately held green space. These programs vary, but usually offer lower or much lower tax rates on certain parcels. They are critical, and very good programs. What they don't do is eliminate the injustice of the very existence of the tax, and they end up not affecting most owners, and thus not affecting the way those owners view the asset, and they also, in King County 's case, don't eliminate the tax, but just lower it. Nor do they address the cumulative past “injustice” of the tax on wildlife habitat.

 

 

Pileated Woodpecker image soon

On a plane to Pennsylvania recently I sat beside a woman who was a professional lecturer. Since I was about to give the only talk I have ever given before or since, she asked me what points I'd make in this speech and I immediately brought up the property tax's effect on wildlife habitat. This struck a chord with her. She told me that she had recently inherited a 160 acre family farm in South Dakota from her dad, and it had a fantastic amount of wildlife living on it, including Bluebirds and Pileated woodpeckers. She wanted to keep some of the land on the farm for nature as much as possible, but that course would clearly be expensive.. It would cost $2000 a year in property taxes to simply own the land and not do anything with it. The irony is that if she had inherited the same value of wealth in portfolio assets, she'd be completely off the hook.

 

The property tax also puts an unfair burden on any land-intensive business, such as farming, ranching and timber ownership.

 

The property tax also contributes to the subsidy of the car & truck, since most land & improvements are taxed including railways, but the roadway is exempted. This could be addressed--(well, politically this would be close to 100% impossible) by reducing property universally while extending the obligation to the roadway, thus keeping the change revenue neutral. Federally this tax would be collected at the pump and disbursed to state and local governments around the country. This would address the rural/urban revenue disparity. We'd all pay state and city governments in states like Wyoming for the land we use to drive through them on the way to either coast, and we'd pay the counties like Grant County that we drive through between Spokane and Seattle..

 

35Graph showing percent of equity vs. property as people get richer. This (coming in the future)

 

The property tax is also hugely regressive, by the way. Apartment dwellers pay this tax in full because it is passed on under normal market conditions. Since rich people tend to have more portfolio wealth than poor people, and portfolio wealth is unscathed by the property tax, they do very well under this tax. This Indiana study compares the progressivity, regressivity of different taxes between the upper middle class and lower middle class and finds the property tax one of the most regressive. (Whoops, need to reference this—coming soon).

 

But if you compare how the very rich do under this tax, it gets a little more amazing. Bill Gates pays one/fifth of 1% of the property tax that my wife and I pay as measured against our repective net worths.

 

Land use restrictions

In parts of the country such as Oregon and eastern King County , Washington , there are ongoing rural political uprisings against environmental land use restrictions. I'm not going to get into this whole issue, which is complicated. But as a matter of simple justice, shouldn't the environmental community, of which I consider myself a part and a stong supporter, be in favor of the complete elimination of property tax obligations on any land which is ruled not developable for reasons having to do with the environment? This would not remove or end the anger, but it would be a small step in the right direction.