By JOSEPH KOPSICK | February 14th, 2017
Lake County's Heavy Burden
State and local governments should re-evaluate the way they think about property taxes. Out of about three thousand American counties, only sixteen pay higher property tax rates than Lake County, Illinois. Lake County households pay a median of over $6,500 in property taxes annually, which is more than five times the average American’s property tax bill.
Only the New York metropolitan area pays more than Lake County in property taxes. Northeastern Illinois is “Taxed Enough Already”. Additionally, Illinois has the second highest property tax rates in the country. The five counties that make up Chicago’s north and west suburbs are the five highest-taxed counties in the Midwest.
If sales taxes on cigarettes are meant to deter smoking, then are taxes on income meant to discourage working? Former Reagan economic adviser Art Laffer theorized that when tax rates are too high, the tax removes the incentive to work, effectively penalizing productivity. Likewise, property taxes resemble penalties that we receive for making improvements on our land.
We make improvements to our land, but when we do, local governments increase our property taxes. Keeping what we produce on our property is the natural incentive that we have to own homes and make improvements. However, property taxes remove these incentives by confiscating part of what we produce.
Libertarians want to eliminate taxes, but until that can happen, taxes should at least be guided by rational principles and make a distinction between helpful and harmful behaviors. This may sound like the “no victim, no crime” principle applied to tax policy, but the philosopher Henry George arrived at the same conclusion.
American economist Henry George wrote the pamphlet Progress and Poverty, one of the best-selling American publications of the 19th century. George’s philosophy is called Georgism or Land Value Taxation (LVT). Georgist economist Herman E. Daly summarizes this approach as "tax bads, not goods". Advocates of LVT believe that land and raw materials are the source of all wealth. Georgists would disregard everything but the land for tax purposes, including buildings and other improvements. In other words, tax the land, not the buildings. Under a Georgist tax code, those who own the smallest amounts of land and damage their property the least would pay the lowest taxes.
Although Georgists would like most land to be held in common, they're not against markets or private property. In fact, their stances on the products of labor and how land value should be determined are quite laissez-faire. They would leave productivity alone to flourish while discouraging waste by taxing it. This effectively encourages production without giving taxpayer money to businesses in the form of subsidies.
Georgists would impose Pigovian taxes, named after 20th century British economist Arthur Pigou. Pigovian taxes penalize negative externalities, which are economic activities that harm or impose undue burdens upon other people. Property owners would have to pay higher taxes if they pollute groundwater, store hazardous materials or waste on their property, or allow their land to become blighted.
Georgism in America
George's ideas aren't just idealistic political theory, a form of Georgism called split-rate taxation has been tried in America. Split-rate taxation allows communities to experiment with taxing land value at higher rates than buildings. In Pennsylvania, which allows communities to implement split-rate taxation policies, there are towns that have been guided by Georgist principles for more than a hundred years.
From the mid-1970s to the late 1990s, numerous Pennsylvania municipalities experienced increases in building permits, private construction and renovation, and factory employment after switching to either split-rate taxation or taxing land value only. They also saw apartment rent and average household taxes decrease.
In the mid-1990s, seven Pennsylvania municipalities derived more than half of their government revenues from land taxes. Five of those seven communities taxed businesses at less than one-tenth of the tax rate on land. This suggests that land taxes could easily replace taxes on productivity and render them obsolete.
Communities in Maryland, Delaware, New York, and Alabama have also experimented with split-rate taxation. Split-rate taxation advocates hope that this sort of policy will discourage speculation (especially on vacant lands), make urban infrastructure more efficient, make new urban sprawl unnecessary, and ensure that development has a lighter impact on ecosystems.
Henry George's ideas have gained some attention in the Libertarian Party (LP). His influence on the LP is not new, party co-founder and “Nolan chart” designer David Nolan was a proponent of the LVT. Additionally, Milton Friedman praised LVT in 1978, saying “In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago”.
Geolibertarianism is a political and economic ideology that integrates libertarianism with Georgism. Geolibertarians advocate for full civil liberties, the repeal of laws against victimless crimes, and tax reform that improves both property values and the environment. Geolibertarians believe in the natural right to keep the fruits of one's labor as exclusive private possessions, without paying taxes on wages, labor, or the products of labor. They observe that land, space, and raw natural resources are finite goods that should be open to common access and considered unowned.
Libertarians and Georgists debate what, if anything, makes taxation voluntary, and other topics such as corporate taxes and citizens' dividends. Despite these differences, they share the desires to build a simpler and more rational tax code, leave individuals free to produce, and keep government as close to the people as possible.
The Libertarian Party should do whatever it can to suggest new ways to decrease the impact of taxes on productivity in Chicagoland. We should consider any and all approaches that shrink government while letting people keep more of their own money.
Northeast Illinois's high property taxes present a great opportunity for local Libertarians to propose sensible tax reform to solve the problems of high taxes that are stifling economic growth. The split-rate tax is a promising alternative to the burdensome tax schemes enforced across the majority of the country.
To read more, see the Aquarian Agrarian