Tax Land?

Edward J. Dodson

[A letter printed in City Paper, Philadelphia, PA; 30 April to 7 May, 1998]

Reading Gwen Shaffer's coverage ("Revenue A-Go-Go," CityBeat, April 24) of the city's plans to establish a number of strategically located tax-free zones brought back memories of the one important thing I learned studying economics: the law of unforeseen consequences.

And what the city is likely to get are unforeseen and unwanted consequences because of a broadly misguided and incomplete understanding of how taxes impact the movement of financial resources and business activity.

Tax-free zones are actually the right public policy, not merely for distressed neighborhoods but for the entire city (for all communities, in fact). Eliminating taxation tends to reduce the cost of doing business and the cost of living for people working and living in the tax-free zone. However (and this is a big "however"), by lowering the tax rate on land itself, government provides the fuel for private land speculators to acquire locations and hold them out of development for speculative gain.

Think about this: Things people build start to fall apart (depreciate) as soon as they begin to be used or lose market value if they sit on a shelf unsold for very long. But owners of parcels of land are not generally under the same pressures; (all things being equal) land does not lose its usefulness over time. Thus, as businesses and developers and home owners look for available parcels of land in competition with one another, owners tend to react exactly opposite from the owners of goods or services. They become hoarders of land, or speculators, waiting for the price to rise and rise even more. Removing the annual tax on parcels of land simply makes it easier for owners to hold land off of the market waiting for prices to increase. The best public policy response to promote development and job-creation is: remove taxes instead from the activities the city and its people want and need-from commerce, from buildings of all types and from incomes.