Detroit: LVT would fix that

In a recent Mackinac Policy conference, Detroit’s Mayor Mike Dugan proposed *drum roll* a land value tax. Sort of. Mayor Dugan’s proposal would create separate tax rates for land and capital improvements (i.e. the buildings on top). Specifically, he wants to decrease the tax rate on buildings by ~30% and increase rates on land by ~300%. The change would increase revenue for the city and also cause a series of second order effects.

Taxing Blight & Rewarding Investment

Detroit’s existing tax structure disincentives development. Holding vacant land or land with dilapidated (i.e. assessed as worthless) structures is cheap from a tax perspective. Actually developing land triggers a tax increase because of the brand new structure who’s value gets figured into the tax bill.

What’s worse, the existing tax system encourages land hoarding. Land speculators sit on neglected parcels on the off chance that a developer needs it as part of a larger project. To caveat that, though, not all land speculation is bad. Holding some land off market and releasing it later into a development cycle can have positive benefits. In Detroit’s case, however, these are mostly vacant lots and abandoned buildings creating public health hazards the city has to deal with.

The Political Economy of Land Value Taxation

Unexpectedly – for me as a latte sipping coastal urbanite in California – Dugan’s LVT would also lower tax bills for homeowners. Land values in Detroit are low — in absolute terms and relative to structure values. Making the shift to taxing the less valuable land component of a property nets out positive for most homeowners. And the fact that it’s a win for homeowners makes me think it’s politically viable, both in Detroit and elsewhere.

In places struggling to get back on a growth footing — places where land values are relatively low because the local economy is relatively unproductive — proposals like Dugan’s might net out positive for homeowners. Wherever this type of property tax reform puts money back into homeowners’ pockets, it’s going to be politically possible. Which is, for the record, the complete opposite of high productivity coastal metros where land itself quite expensive.

But is it really going to happen?

Whether Dugan’s plan actually happens, though, is TBD. My understanding is that there’s a two step process. First, the Michigan state legislature passes a bill allowing Detroit to enact the change. Second, Detroiters have to pass it by popular vote. I have no idea what Michigan state politics look like, so no idea how to assess the p(this_actually_happens).

Additionally, this is not the maximalist 100% LVT proposal that many Georgists prefer. It’s a much more modest change — with a three year phase in. It will have impact in the aggregate and the long run, but it’s not heralding the arrival of Georgist utopia in the Great Lakes.

All that said, it looks like sound policy. And if an elected official is pitching it, I have to assume someone thinks it has legs. Fingers crossed for Mayor Dugan, Michigan, and Detroit.

Further Reading:

Mayor Dugan at the Mackinac Conference

Split Rate Property Taxation in Detroit: Findings And Recommendations