130 miles apart, Pittsburgh and Cleveland are similar cities in many ways. Pittsburgh lies at the junction of three major rivers and Cleveland on a natural harbour on Lake Erie. These navigable waters connected them to coal and iron ore mines and made them industrial hubs but the decline of steelmaking and related industries has left them as the two largest “rust belt” cities. At the beginning of the last century, Cleveland was the nation’s fifth largest city and Pittsburgh was eighth, and Cleveland was the third largest corporate headquarters (behind New York and Chicago) until it fell in rank to Pittsburgh. Both have seen their populations decline with migrations to the suburbs and to the south and west of the United States. Both now have fewer than half the residents they had during their peak years.
Cleveland has never fully recovered from the collapse of “big steel,” while Pittsburgh rebounded easily. This was because Ohio never gave Cleveland the option of having a land tax similar to that in Pittsburgh, and as a result, it relied less on real estate taxes for raising revenue. Its lack of a land tax means that its property prices tend to be higher than in Pittsburgh and purchasers consequently have to borrow more. In 2005, Cleveland had an affordability index [median house price divided by median household income] of 3.61 compared to 2.44 in Pittsburgh. Although 3.61 was not high by national standards, it was the highest of any northeastern industrial city.
In 2008, just after the housing bubble broke, Cleveland led the nation in mortgage foreclosures per capita while Pittsburgh’s foreclosure rate remained exceptionally low. Since then, the foreclosure rates in Las Vegas and many Californian cities, none of which collect significant real estate taxes, have passed Cleveland’s foreclosure rate. However, on September 15, 2010, The Pittsburgh Post-Gazette reported that while at the end of the second quarter of 2010, 21.5% of America’s single-family homes had underwater mortgages (the American term for negative equity), only 5.6% did in Pittsburgh. As a result Pittsburgh was top of a list of the ten markets with the lowest underwater mortgage figures. 
How land value tax prevents speculation
Land value taxes discourage the bidding up of land prices and it is cheap land coupled with lower taxes on productivity that attracts productive investors to Pittsburgh. During the boom decades, land-taxing cities like Pittsburgh could not offer the speculative gains that California did but now they not only offer lower land prices and lower productivity taxes, but, importantly in these volatile times, they also offer land prices that are unlikely to fall in the future simply because they never became inflated in the first place.
This came about because investors are not just interested in the return to their investment but in the after-tax return. If land is increasing in value by 9%, and there is a 1% tax on land values, the net return is 8%. However, a 5% tax on land values cuts the net return to only 4%. Similarly, if the return to a productive investment such as a building is 9% and the taxes on productivity are only 1%, the net return is 8%. If the productivity taxes take 5%, they reduce the return to only 4%. If an investor has the choice of putting all his money into building a small number of houses or into buying up a much larger number of vacant lots, he will choose whichever course of action yields the highest after-tax return. That is, he will choose to build in a land-tax economy and choose to buy up land in a productivity-tax economy.
Pittsburgh has not always done so well during recessions as it is doing today. It suffered badly in the real-estate crashes up to and including the 1906 depression but its property market has been remarkably stable ever since and is continuing to attract investors despite the present recession. This transformation is linked to a series of economic reforms adopted between 1906 and 1913. Before 1906, Pittsburgh gave special tax breaks to large landholders under “agricultural” and “rural” classifications. During Pittsburgh’s reform era, the city not only eliminated those breaks but also changed its property tax to fall more heavily on land and more lightly on improvements. Productive land use became less costly while idle speculation became unprofitable. As a result, city real-estate prices did not crash during hard times because they hadn’t inflated during boom times.
America’s early depressions were sometimes as severe as the Great Depression, which was “great” partly in the sense that it was global, just as World War I was originally called The Great War because it was global. (In fact, far more Americans lost their lives in the Civil War than in both “great wars” combined.) America’s most severe panic was probably in 1837, which closed more than 40% of the banks  and wreaked havoc on the economy.
According to historian Stefan Lorant, “The panics of 1819, 1837 and 1857 hit the city [Pittsburgh] with particular severity. Business slackened and factories closed; and workingmen and merchants alike felt the impact of the hardships.” Lorant notes that the depressions of 1873, 1884 and 1893 were also severe in Pittsburgh. He quotes The Growth of the American Republic, by professors Morrison and Commager:
Prices and wages hit rock-bottom and there seemed to be no market for anything. Half a million laborers struck against conditions which they thought intolerable, and most of the strikes were dismal failures. Ragged and hungry bands of unemployed swarmed the countryside, the fires from their hobo camps flickering a message of warning and despair to the affrighted townsfolk.
In 1894, “Coxey’s Army” of unemployed began its march on Washington, D.C., from western Ohio, with members having arrived by train from as far as Texas. Their ranks nearly doubled when they passed through Pittsburgh and Homestead.
The Russell Sage Foundation’s famous Pittsburgh Survey of 1910 showed how severe the poverty was here. “One third of all who die in Pittsburgh… die under five years of age. One fourth… die under one year of age.”
Fighting land monopoly and speculation
Until recently, Americans had always opposed the kind of land monopoly that had oppressed Europe. The Articles of Confederation called for even the federal government to be funded from a tax on the value of privately held land. 
The minor parties that formed the Republican Party also formed the roots of the progressive movement. They regarded land monopoly as a second form of slavery, and opposed both forms vigorously. The Free Soil Party advocated “the free grant to actual settlers,” as opposed to selling large tracts of land to privileged elites. 
Abraham Lincoln had gained his reputation defending homesteaders against “land sharks” who would file counter-claims and demand payment to drop the challenges. In 1843, Lincoln wrote:
“An individual, or company, or enterprise requiring land should hold no more than is required for their home and sustenance, and never more than they have in actual use in the prudent management of their legitimate business, and this much should not be permitted when it creates an exclusive monopoly. All that is not so used should be held for the free use of every family to make homesteads, and to hold them as long as they are so occupied….
The idle talk of foolish men, that is so common now, will find its way against it, with whatever force it may possess, and as strongly promoted and carried on as it can be by land monopolists, grasping landlords, and the titled and untitled senseless enemies of mankind everywhere.” 
After the Civil War, progressives witnessed the closing of the frontier and saw land speculators out-bidding those who wanted to put the land to use during the boom years, fueled by the expansion of bank credit that contracted during recessions. Besides monetary and banking reform, progressives advocated real-estate taxes, particularly on land, to make such speculation unprofitable. 
The Pittsburgh battle for reform
Although land speculation was a problem everywhere, it was particularly bad in Pittsburgh, which had been carved up for the benefit of officers in the Revolutionary War. Speculators and large estates in the city got special “farmland” and “rural” tax rates at the expense of urban properties. The price of land, and the taxes on urban real estate, became so high that workers lived in tiny houses on tiny lots. 
Henry W. Oliver, president of the Pittsburgh Common Council, complained in an 1872 speech of “the great landholders and speculators, and the great estates which have been like a nightmare on the progress of the city for the last thirty years.”
The same Pittsburgh Survey that exposed Pittsburgh’s poverty showed that this classification system had “enabled big real estate holdings to get out from under the full share of their local responsibilities.” Corrupt assessment practices also shifted taxes off of speculators. However, that government was swept away after perhaps the largest municipal scandal in American history resulted in 41 indictments against city councilmen, bankers and industrialists.
In 1911, the reform government abolished special tax breaks for large estates  and abolished the taxation of machinery. 
In January 1912, the Pittsburgh Civic Commission, headed by H. D. W. English and H. J. Heinz, reported that land prices were extraordinarily high in Pittsburgh at that time, second only to those in New York City. “Industries will be slow to locate in Pittsburgh if rents or prices of land are higher than in other cities,” the report stated.
It also noted that a few individuals and families had owned large tracts and that some owners, by making ground leases or by improving to a very small extent, had received sufficient income to enable them to hold their land for increases in value due to the city’s rapid growth.
A few individuals have been enabled by circumstances to place and hold land prices at a figure which prevents the profitable use of the land by others. Can this paralyzing grip on Pittsburgh’s growth be broken? We recommend twice as heavy a tax on land values as on building values as the remedy. This means to place a penalty on holding vacant or inadequately improved land and to offer special inducements and premiums for improving land. 
Mayor Magee endorsed the measure on learning that Vancouver, British Columbia, had enjoyed considerable success after replacing their building tax with a land value tax (LVT).  Supporters got a state law introduced for second-class cities (Pittsburgh and Scranton) requiring those cities to adopt the Civic Commission’s proposal, with a phase-in spread over ten years.
Even the Pittsburgh Real Estate Board (now known as the Association of Realtors) had joined with the Single Tax Club of Pittsburgh, the Civic Commission, the Pittsburgh Board of Trade, the Civic Club of Allegheny County and other organizations in support of the bill. The Pittsburgh Dispatch wrote: “The realty board endorsed the act and recommended its passage and is anxious to have the Governor approve it.” They sent a delegation to Harrisburg to urge passage of the bill. 
It passed in the House by a vote of 113 to 5 and in the Senate by a vote of 40 to 0.  A repeal campaign was launched by the largest landowners, including agents of the Schenley estate, the biggest of all. Some opponents of the graded tax said that “unimproved landowners are the poorest of property owners” and that the graded tax was disturbing to the economic and financial situation in Pittsburgh and that it would bring depression and hard times. Former Mayor Magee traveled to Harrisburg to defend the bill. He said the opposing delegation from Pittsburgh didn’t represent the small property owner but the large interests of the city. “They come here weeping and wailing,” said Magee, “and you would think the small property owner would be wiped out of existence. They tell you it is a terrible experiment.”
The Pittsburgh Press also defended the law, stating:
The law is working to the complete satisfaction of everybody except a few real estate speculators who hope to hold idle land until its value is greatly increased by improvements erected on surrounding territory. Everybody endeavoring to gain a big profit in this parasitical manner is naturally opposed to the law and to the principle which it represents; it is nevertheless endorsed by and is clearly in the interest of the vast majority of the public.
The repeal bill passed both houses, but was vetoed by Governor Brumbaugh, who said:
This repealer is opposed by the largest group of protestants that have been heard on any bill…. It is advocated by those in charge of the fiscal policy of one of the two cities concerned. Inasmuch as there is such a conflict of opinion, and inasmuch as the law has scarcely yet been tried, it is well to allow it to operate until a commanding judgment decrees its fate. To disturb it now, when a preponderance of opinion favors it, is unwise.”
Pittsburgh’s experience with land value tax
Land prices only rose 14% in Pittsburgh during the 12 years after the graded tax was adopted in 1913, while they boomed in the rest of the nation.  Real-estate interests complained that LVT was robbing Pittsburgh landowners of gains enjoyed elsewhere. However, Mayor Magee saw these gains as speculative, and stood by his actions. He noted in 1924:
I am principally interested in two things regarding taxation: the progress of the graded tax law and the problem of assessments for public works. Both concern the unearned increment, the profit of land owner who becomes rich through growth of the community without effort on his own part. I am frankly opposed to him…. [H]e is a parasite on the body politic.”
Magee was proved correct. National land prices peaked in 1925 and plummeted with the Great Depression, except in Pittsburgh. Despite the great flood of 1936, Pittsburgh’s land prices fell only 11% between 1930 and 1940, compared to 58% in Detroit, 50% in Los Angeles, 46% in Cleveland, 28% in Boston, 27% in New Orleans, 26% in Cincinnati, 25% in Milwaukee and 21% in New York. Land prices in Pittsburgh even fell less than in Washington, D.C., where the New Deal was booming. 
Of course, times were still tough in Pittsburgh, especially for those who depended on steel or other industries tied to the global economy. Still, Pittsburgh was spared the added problem of a real-estate crash because its graded tax had discouraged speculators from bidding up land prices during the previous boom.
After World War II, other industrial cities got hammered once again, but even though Pittsburgh had been the world’s number-one supplier of armor plate during the war, it enjoyed a renaissance that was the subject of at least 26 national and international news articles. 
The most amazing aspect of Pittsburgh’s renaissance is that it had a construction boom without a real-estate price boom. In 1960, when real estate went into another recession, Pittsburgh continued building.
During that recession, House & Home, the construction industry’s leading trade journal, recommended that other cities prevent land bubbles by doing what Pittsburgh was doing — taxing land values more heavily than building values. It quoted Pennsylvania governor and former Pittsburgh mayor David L. Lawrence as saying: “There is no doubt in my mind that the graded tax law has been a good thing for the city of Pittsburgh. It has discouraged the holding of vacant land for speculation and provides an incentive for building improvements.”
Over the years, Pittsburgh adopted other taxes that eroded the effect of LVT on speculation. In December 1978, however, Pittsburgh council president William J. Coyne rejected the mayor’s call for increased wage taxes and convinced council to nearly double the LVT. The next year Pittsburgh raised the LVT to five times the building tax rate, and two years after that raised it again. These were also Pittsburgh’s last overall tax increases for twelve years.
Another spectacular surge in construction followed as owners of underused land became more willing to sell. The only eminent domain controversy involved land acquisition for the PPG complex the year before LVT increases went into effect.
1978 was also the year that California passed Proposition 13, which sharply curtailed real-estate taxes in that state. From that point on, cities in California got smaller shares of their revenue from property taxes than cities in any other state. While Pittsburgh enjoyed steady land prices in the midst of a building boom, California was consumed by a land-speculation frenzy. Foreign interests acquired more California land within the first 18 months after Proposition 13’s passage than they had accumulated in the entire history of that state.
Most foreign land acquisition was by Japanese concerns. How did they get enough US dollars to buy up California land? Early in 1980, US Steel chairman David Roderick accused Japan of “dumping” cars on the US market, noting that Toyotas sold for 17% less in the US than in Japan. Japan had already been increasing exports to the US for some time, but lightly taxed California land made American dollars even more attractive to Japanese land speculators.
In 1979, Pittsburgh’s largest employer, the Jones & Laughlin steel mill, shut down. Even this didn’t prevent Pittsburgh from enjoying the biggest construction surge in its history. The real-estate editor of Fortune credited the LVT with playing a major role in Pittsburgh’s “second renaissance.”
Councilman Coyne was elected to Congress in 1982. In 1983, council president Ben Woods convinced council to reduce taxes on buildings and make up the shortfall from higher taxes on land values, even though there was no need for more revenue.
However, Pittsburgh and its school district also levied an aggregate 4% wage tax, and research requested by mayor Masloff indicated that this tax was driving renters and potential home buyers out of the city at an alarming rate. In 1988, Masloff determined that the city had a surplus, and reduced the wage tax by five-eighths of one percent.
In 1989 she proposed to lower the wage tax by another 0.5 % and make up the revenue with a conventional property tax increase of 10 mils (1 percent) on both land and buildings. Council president Jack Wagner proposed to put the entire increase on land values instead. A storm of protest raged at the public tax hearing against increasing overall property taxes, but most testimony with regard to Wagner’s LVT alternative was in favor of it. In a compromise with the mayor, Wagner’s council increased the tax on land value by 33 mils and on buildings by 5 mils. Pittsburgh’s real-estate values and construction levels remained steady during the recession of 1990.
As Pittsburgh’s economy continued to grow and land values remained stable, California’s land prices rapidly rose and its economy became strained. California’s housing affordability index (median house price divided by median income) had been only 10% higher than the national average when Proposition 13 passed. By 2005, it was three times the national average. 23 of the nation’s least affordable cities were in California. The median house price in San Francisco rose to 12.8 times the median income. Even dusty, miserable Bakersfield, the most affordable city in California, had an affordability index of 5.6. Pittsburgh’s index was 2.44, among the lowest of any northeastern industrial city.
Once again, the real-estate collapse missed Pittsburgh because LVT prevented the bidding up of Pittsburgh’s land prices during the national boom decades of the ’80s and ’90s. In 2008, with the nation’s construction industry coming to a near standstill, the business agent of Pittsburgh’s Carpenter’s Union announced that they were looking for 250 additional carpenters and apprentices to fill the increased demand Pittsburgh was enjoying. Meanwhile, California, which had curtailed real-estate taxes at the behest of those who said that those taxes were “forcing people out of their homes,” led the nation in housing foreclosures.
Undoing the graded tax
Support for taxing land values more than buildings remained so strong in the City of Pittsburgh that efforts to repeal the policy consistently failed. many years, the chief city assessor was also the head of the Henry George Foundation of America, which championed LVT throughout North America 
In 1942, however, responsibility to assess land values was shifted to the county, where opposition to LVT was stronger and support weaker. A provision of Pennsylvania law was added to the second-class county code requiring Allegheny County to assess the value of land and improvements separately. Although the law reflects preferred assessment practices anyhow, it was put in place to protect the city’s LVT.
County assessors gradually came to ignore land values, keeping those the city assessor had put in place and putting subsequent changes onto building values whenever possible. 1980 assessments were a fairly accurate reflection of 1950 land values.
This meant that land values became relatively over-assessed in declining neighborhoods and under-assessed in advancing neighborhoods. However, the city’s shifts to LVT in the 1980s were followed by substantial land-assessment reductions in Shadyside, the trendiest neighborhood in the city, and smaller reductions in Oakland and Squirrel Hill, the city’s two most prosperous and politically prominent neighborhoods after Shadyside. This marks the point when county assessors crossed the line from neglect to overt malfeasance. Even so, home owners in the poorest neighborhoods still saved under LVT, and many in the richest neighborhoods paid more. Middle-income neighbourhoods saved the most.
However, opponents of LVT dominated the county board of assessors. They hired a private assessment firm, Sabre Systems, which assessed land values with such a terrible lack of uniformity that the city was forced to abandon the tax in 2001. Sabre Systems assessed lots with buildings on them six to ten times as high as identical, adjacent vacant lots. They did this only in Pittsburgh, even though there were three smaller cities in the county, Clairton, Duquesne and McKeesport, that also relied on LVT.
Wildly erratic land-value assessments forced Pittsburgh City Council to abandon LVT in 2001. The increased cost to home owners was partly offset by special exemptions, but this was done at the expense of renters and business properties, who have had to pay higher taxes into a shrinking budget. Many council members blamed the assessments and said the tax change was temporary. Only one council member blamed the LVT itself.
After losing a long series of court cases and appeals, the county is today finally addressing assessment irregularities under court order. The city controller and several city council members have expressed interest in returning to LVT if realistic land assessments are made because, if Pittsburgh is to be protected from the next recession, it must end these abuses and reinstate LVT before the next boom era.
Pittsburgh is not alone
Every one of the 19 land-taxing cities in Pennsylvania enjoyed a construction surge after shifting to LVT, even though their nearest neighbors continued to decline. Clairton, Altoona and Aliquippa have shifted farther than any other cities toward a pure LVT, and are enjoying unrivaled economic vitality. LVT has also been far more extensively employed in Canada, Australia, New Zealand, Denmark and other countries, with similar success. Those who dispute the effects of LVT and suggest that Pittsburgh is prospering for other reasons have not put forward an answer as to why virtually all land-taxing cities in the world out-perform their neighbors.
Even states that rely heavily on conventional property taxes (with equal rates on land and buildings) have done far better than states that have curtailed property taxes.
Claims that Pittsburgh is prospering because of its efforts to become a “green” city do not explain how Pittsburgh held its land values during the Great Depression, when it was the dirtiest, smokiest, most polluted city in the nation, nor why Pittsburgh land values failed to inflate as it cleaned itself up during what were boom years for other cities, nor why the much greener cities of Portland and Seattle have suffered serious economic setbacks.
Claims that Pittsburgh was saved by its economic development projects try to gloss over the many disastrous projects, where one subsidy after another went to businesses that opened, sucked out the subsidies and then failed, or to over-subsidized corporate businesses that drove out competing, fully-taxed smaller businesses in a process known as “economic cannibalism.” Those who suggest that the new casino helped the economy have to admit that the city with the highest foreclosure rate in the U.S. is Las Vegas, the casino capital of the nation.
If anything good can be attributed to our changing policies, it is that the changes were either thwarted or came too late to do the damage done in other cities. Pittsburgh fought unsuccessfully to get a “commuter” wage tax like the 2% tax in Cleveland or the roughly 4% tax in Philadelphia. However, those cities’ commuter taxes drove out businesses even faster than residency taxes drive out residents. Some suburbs of Cleveland even made a science of stealing businesses by charging the tax on workers and then rebating half of it back to the employers. Meanwhile, Philadelphia’s flight of businesses has been so bad that even the Philadelphia Association of Realtors has advocated shifting from wage tax to LVT.
What will become of Pittsburgh?
If Pittsburgh can either force the county to assess land properly or retake control of its own assessments, it will once again be able to boast the most recession-proof real estate in the nation. However, if it does not do so before the next real-estate price boom, it will not be able to prevent the next crash either. This is because LVT prevents booms and preventing the booms is the only way to prevent busts.
Lessons for environmentalists
Extending LVT to air, water and non-renewable resources
Some pollutants are so noxious that they must be banned outright, but most must merely be reduced. The principle that the earth is a commons applies to air, water and non-renewable resources. A pollution tax on emissions begins with the premise that everyone has an equal right to enjoy the air and water, and that those who use the air and water to hold their pollutants owe rent to the rest of use, whose enjoyment of that air and water is diminished. Thus, while a local LVT might not prevent factory pig farms, local taxes on water pollution certainly would.
The difference between land and non-renewable resources is that the latter are consumed, while land is merely held. Therefore, non renewables cannot be rented. Still, the principle that resources are part of the commons means that it is proper for the community to decide how quickly or slowly it wants those resources to be consumed, and to set royalty charges accordingly.
Cap and trade and the Enclosure Acts
Cap and Trade, on the other hand, is based on the idea that those who have been polluting all along have somehow earned a “property right” to continue polluting, and that those who want to pollute, even if they produce more and pollute less, must purchase “pollution rights” from the entrenched polluters.
It is put forward as a liberal environmentalist idea, but it has its origins in the “pollution tax credit” schemes of Ronald Reagan and Margaret Thatcher. It is a very dangerous approach, as it not only rewards past polluters, but enables them to punish cleaner, greener competitors.
For example, a company that can produce electricity with half the emissions must first purchase pollution credits from the established polluters. If the established polluters don’t want to sell, or want to charge enough to make the greener alternative unprofitable, their Cap and Trade privileges actually hinder the transition to greener technology.
The burden of Cap and Trade falls on ordinary people for the benefit of the privileged. It is analogous to the Enclosure Acts of England and other countries, where, “for the sake of game,” ordinary people were prohibited from hunting or disturbing wilderness land, while nobles were allowed even more latitude to run roughshod over the environment.
There are various sound alternatives to Cap and Trade, from pollution taxes to Cap and Share, in which every citizen gets pollution tax credits to sell to the polluters. The differences between these proposals are minor, and the best alternative is probably the one that is simplest to administer. The essential feature is that polluters must pay the community to pollute, rather than greener industries paying dirtier industries to pollute less.
LVT vs. rural building restrictions
Many environmentalists think of sprawl as building in rural areas, and try to fight sprawl with restrictions that hamper the economy. Supporters of LVT see the demand for rural land as caused by the failure to build compact development in urban and inner suburban areas. Rural land is prized by developers for one reason only: it is less expensive to buy than urban and suburban land. A tax on the value of land draws that development inward and reduces the demand for rural and agricultural land. Removing land speculation as an obstacle to urban development has a positive effect on the economy, compared to imposing restrictions on rural land. The notion that “good environmentalism is good economics” is true with regard to LVT. It is hard to make a case that it is good with regard to building restrictions and the bureaucracy that inevitably accompanies them.
Problems with exemptions
Some environmentalists argue for exemptions for land owners who hold their land as farmland or in a “clean and green” state. Those who hold “clean and green” land are invariably wealthy, for who else can afford to hold large tracts of land out of use? Often, land is held back where demand is high, forcing development to “leap frog” over that land into more rural areas. As the editors of House & Home noted half a century ago,
Suburban sprawl is what makes homebuyers drive past miles of unused or underused countryside to get home to their tiny 60’ x 120’ lots. (Open fields, cow pastures, private golf links, and millionaire estates are fine, but it is much better to drive out five miles beyond your home to enjoy seeing them when you want to than to have to drive five miles past their “No Trespassing” signs when all you want is to get home.)
House & Home thinks “development easements” are the worst idea yet. They just aggravate and perpetuate the sprawl by using tax money to keep golf links, orchards, and cow pastures where houses should be built, and push homebuilding out beyond to where the golf links, etc., should be. Green belts should be planned for maximum, not minimum, public use and enjoyment of the land. The 1,200 acre Field estate will make a fine state park, but as a fenced-in private property it was little or no good to anybody except the owners.
Many who first hear about LVT fear that it will lead to “overdevelopment” of land, with no green space or human scale. However, Pittsburgh is reputed to have more trees than any other city in the U.S. While this is partly due to the city’s hilly terrain, it is also due to very large city parks, many of which were sold or donated to Pittsburgh by its largest land owners.
Municipal parks are an appropriate way to maintain green space; that is, space that is maintained for the benefit of all should be under the control of democratic institutions. In contrast, open land has often been held by private interests that enjoyed tax breaks while waiting for land values to “ripen,” and was then sold at a profit. Meanwhile, development leap-frogged over that land.
“Special farmland assessments” whereby land is assessed at its farm value instead of its market value, are similarly flawed. In genuine farming areas, the farm value is the market value. Farmland assessments mostly protect farms within or adjacent to the suburbs, and force the suburbs to leap-frog into farming areas.
“Smart growth” development zones and density zoning
Development zones, often based on the Portland model, are artificial attempts to offset the effects of automobile-based sprawl. They impose incentives for developing within the zone and penalties for developing outside the zone. However, where land is inadequately taxed, the price of land inside the zone will simply rise until it swallows the value of the incentives, and the price of land outside the zone will fall until it offsets the cost of the penalties.
The problem is further aggravated by density limits within the smart-growth area. Laws that prohibit high-rise buildings in low-rise zones, low-rise apartments in townhouse zones, and townhouses in zones for free-standing houses with minimum lot sizes, prevent development from occurring within the zone, both by preventing the developer from doing more with less land, and by keeping land prices high within the smart-growth zones. Abolishing density limits within urban areas is a lot smarter than imposing arbitrary smart-growth zones.
These smart-growth zones assume that development should occur within a large circle, but a look at development patterns prior to the automobile reveal that this was rarely the case. Rather, development was dominated by small, self-contained towns, connected to urban hubs by rivers, rail lines, or even roads. However, the roads were lightly traveled, as people tended to work and shop in the same small towns where they lived, and buy a substantial share of their foodstuffs from local farmers.
The bottom line is that it doesn’t matter how far a new development is from the center city. What matters is how far the people in the development will travel from their homes to the places where they routinely work and shop. This is impossible to manage via zoning laws, but substantial taxes on pollution and resource consumption will give people an incentive to arrange their lives accordingly, while substantial LVTs would make it easier for them to do so. Meanwhile, taxes on their own productivity could be reduced.
Alternative energy subsidies
Alternative energy subsidies take money from ordinary taxpayers, including those who have arranged their lives to consume very little energy and give it to people who consume energy, merely because they consume “less.” Thus the person who bundles up and lives in a cold house subsidizes high-efficiency furnaces, and the person who mostly gets around by walking and bicycling subsidizes electric and hybrid vehicles for those who cling to the automotive lifestyle. Replacing productivity taxes with LVTs and resource consumption taxes still gives the owner of the high-efficiency furnace and the electric car an advantage over the person with a dirty furnace and a gas-hog car, but it also gives the sweater-wearing walkers and cyclists an advantage over all energy wasters.
The same is true of public transit, which is extended via subsidies into sprawling suburbs where it just doesn’t work. Taxing land values and eliminating zoning creates the kind of environment where transit can compete with very little subsidy. What subsidies transit needs can come from the land-value increases that transit creates.
The bottom line is that ecology and economics come from the same root and mean almost the same thing, the former from “study of the house” and the latter from “management of the house.” However, it is not enough for environmentalists to insist that good ecology is good economics, for the corollary is that bad economics makes for bad ecology.
Environmentalists naturally rankle at economics, which has been a tool for maximizing wealth from the time when kings sought to out-produce rival nations to modern times when corporate monopolies seek to out-produce rival corporations. That obsession has caused economics to become increasing divorced not only from environmentalism, but also from principles of justice and even from rationality.
Still, disdain for economics on the part of environmentalists perpetuates that logical disconnect. Fortunately, environmentalists do not have to wade through neoclassical econobabble. Rather, if they start with the same key premises that classical liberal economists and philosophers started with, the solutions become clear. Those premises are:
- that the Earth is a commons and that the rent of land belongs to the whole people,
- that the right to the Earth is a usufruct right, not a right to leave it in worse condition than one found it in, and
- that what a human being produces is entirely his own, so long as he has compensated the community for what he has taken from them or foisted on them.
Following these principals, one no longer has to argue whether global warming is apocalyptic or merely detrimental. The one form of energy that is wasted when it is not consumed is human energy. So long as human energy is taxed, following these principes make it obvious, even to global warming deniers, that taxes on non-renewable energy should replace taxes on human energy. So long as human beings sit in forced idleness, it becomes obvious that keeping non-renewables out of use is preferable to keeping human beings out of use.
The limits of resource consumption were not an issue in Thomas Jefferson’s day. Yet Jefferson recognized that forced idleness was caused by monopolization of the earth. Observing wretched poverty in France, he wrote:
Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on. 
The global warming issue has been polarized into a battle between what may be called the alarmist camp and the denier camp, to the detriment of all. Stepping back from this battle, environmentalists can “cut the Gordian Knot” by realizing that it is not necessary for others to agree with their analysis of the problem, but only for others to agree with their solutions.
Shifting taxes off labour and legitimate (labour-produced) capital by placing as much of the tax burden as practible on land, natural resource extraction and pollution is a proposal that many in the “denier” camp can support.
- Lorant, Stefan, Pittsburgh, The Story of an American City, 1999 edition, p. 101
- ibid, p. 196
- Ibid. p. 287, citing Homestead chapter of The Pittsburgh Survey.
- Articles of Confederation, Article VIII, “All charges of war, and all other expenses that shall be incurred for the common defense or general welfare, and allowed by the United States in Congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several States in proportion to the value of all land within each State, granted or surveyed for any person… http://www.usconstitution.net/articles.html#Article8
- Article 14, Free Soil Party Platform of 1848. http://www.angelfire.com/indie/ourcampaigns/1848.html
- Letter from Lincoln to Martin S. Morris, Springfield, March 26, 1843, included in Basler, Collected Works of Abraham Lincoln
- Terence Powderly, head of the Knights of Labor, wrote that, if not for banking privilege, there would be no need for labor unions. The KoL listed one of its purposes as “To prevail upon governments to establish a purely national circulating medium, based upon the faith and resources of the nation, and issued directly to the people, without the intervention of any system of banking corporations, which money shall be a legal tender in payment of all debts, public or private..”
-Thirty Years of Labor, chapter 9, “The Circulating Medium.”
Powderly also wrote, “The demand of the order of Knights of Labor is, ‘that all lands now held for speculative purposes be taxed to their full value.’ The great difficulty is to ascertain to what extent lands are now held for the purpose of speculation…. If the Knights demanded that ‘all lands held by parties, other than the government, shall bear an equal proportion of the taxation required for the maintenance of the government, and unimproved lands shall be assessed at the same rate as the nearest improved land,’ they would come nearer to the establishment of a just rate of taxation, and whether lands were held for speculation or not, they would not escape their just proportion of taxation. -ibid, chapter 8, “Land, Telegraphy and Railroads.”
See also, George, Henry, Progress and Poverty, Book V, Chapter 1, “The primary cause of recurring paroxysms of industrial depressions.”
- Some of these tiny-house neighborhoods survive today, most notably in the bottoms of Lawrenceville.
- Henry Oliver Evans, Iron Pioneer, Henry W. Oliver, New York, Dutton, 1942, pp. 65-6.
- Civic Frontage: The Pittsburgh Survey, “The Disproportion of Taxation in Pittsburgh,” pp. 156-213; 455-68.
- Pennsylvania Laws, 1911, p. 273, approved by Governor John K. Tener, May 11, 1911.
- ibid, pp. 287-88, approved, May 12, 1911.
- Pittsburgh Civic Commission, Civic Bulletin, January, 1912; also An Act to Promote Pittsburgh’s Progress, published by Pittsburgh Civic Commission in 1913.
- “But before finally committing himself to the plan, he [Mayor Magee] sent a special investigator, Thomas C. McMahon, a member of the board of assessors, to visit municipalities in western Canada where similar tax systems had been in operation and were attracting favorable attention. The City of Vancouver had entirely exempted buildings from taxation by gradual steps over a period of fifteen years. That community was enjoying a remarkable building boom, conditions were very prosperous, and the city was receiving ample revenue under its new tax plan.
“Mayor L. D. Taylor of Vancouver came to Pittsburgh about this time to address the Oakland Board of Trade and gave a first-hand report which was decidedly in favor of shifting the tax burden from improvements to land values. Mayor Magee then gave his endorsement to the proposed law and ever thereafter was a consistent supporter of the graded tax plan, bringing to its support many of those who were closely associated with him in political life.”
-Williams, Percy, The Pittsburgh Graded Tax Plan, Its History and Experience, citing Robert M. Haig, The Exemption of Improvements from Taxation in Canada and the United States, 1915, pp. 170-1 (a report prepared for the Committee on Taxation of the City of New York).
- Pittsburgh Dispatch, May 6, 1913, headed “Real Estate Board Committee Goes to Confer with Governor”
- Pennsylvania Legislative Journal, 1913, Vol. 2, pp. 1635-36, 2453
- Pittsburgh Post, April 28, 1915
- op.cit., Williams, Percy
- “Graded Tax Repealer Jolted,” Pittsburgh Press, May 18, 1915
- Pittsburgh Press, June 10, 1915, p. 1.
- op. cit., Williams, Percy, appendix, table 2, “Assessed Valuation – Land and Buildings – City of Pittsburgh” http://savingcommunities.org/docs/williams.percy/gradedtaxtables.html#table2
- ibid, http://savingcommunities.org/docs/williams.percy/gradedtax.html#f128
- ibid, http://savingcommunities.org/docs/williams.percy/gradedtax.html#f159
- Saturday Evening Post, August 3, 1946; June 9, 1956; Commonwealth, September, 1947; Pittsburgh Bulletin Index, January, 1948; Business Week, March 12, 1949; June 21, 1952; April 2, 1955; Greater Pittsburgh, April, 1949; National Geographic, July, 1949; Time, October 3, 1949; Architectural Forum, November, 1949; The American City, July, 1950; Town and Country, August, 1950; Harper’s, January, 1951; August, 1956; The Atlantic Monthly, May, 1951; Fortune, June, 1952; The Spectator (London), December 19, 1952; Real Estate, March, 1953 ; January, 1960; Collier’s, May 30, 1953; USA, Tomorrow, October, 1954; National Municipal Review, March, 1955; Reader’s Digest, May, 1955; Liberty Magazine, February, 1956; Life, May 14, 1956; Look, January 8, 1957; The Nation, February 8, 1958; Holiday, March, 1959; Engineering News-Record, November 19, 1959; Esquire, September, 1960; Newsweek, October 24, 1960
- House & Home, August, 1960, Time-Life Inc., p. 139
- “Plan in Pittsburgh on Building Fought; Merchants Oppose Taking of Their Property for Downtown PPG Industries “Headquarters Protest from Diocese,” New York Times, June 3, 1979, page 51
- California Department of Agriculture. (Further citation needed.)
- “Steel exec thinks Japan ‘dumping’ cars in America,” The Bulletin, Bend, (Deschuttes County), Oregon, Feb. 5, 1980, p. 24.
- “Pittsburgh raised its tax rate on land from 4.95% to 9.85% of assessed valuation in 1979, while leaving the rate on buildings at 2.475%. New construction, measured by the dollar value of building permits issued, rose 14% as compared with the 1977-78 average. In 1980 the city widened the differential still more, to a tax rate of 12.55% on land vs. the .475% building rate, a ratio of 5.07 to 1. … Construction in 1980 leaped 212% above the 1977-78 average, reflecting ground-breaking for a new crop of office skyscrapers that is giving the city its so-called second renaissance (the first came in the 1950s with the redevelopment of the Golden Triangle). The adoption in 1980 of three-year tax exemptions on all new buildings – but not the land – also boosted construction. In 1981 construction peaked at nearly six times the 1977-78 rate. “Some of the dozen new office towers that have gone up in Pittsburgh would have been built with or without tax concessions; downtown office space had been growing scarce. But the widening differential between the taxes on buildings and land undoubtedly helped. It cut the annual bill for owners of some skyscrapers by more than $500,000 a year when compared with conventional 1-to-1-ratio taxation.” – Breckenfeld, Gurney, “Higher Taxes that Promote Development,” Fortune, August 8, 1983, pp 68-71
- Buffalo is the only large northeastern industrial city with a lower affordability rank, but Buffalo is notoriously slum-ridden. “Housing Affordability Rank of 243 US cities with populations of over 100,000.” http://savingcommunities.org/issues/taxes/property/affordabilityrank.html
- A study by the Pennsylvania Economy League (Weir and Peters, 1986) alleged that a consensus of experts claimed land value tax did not aid development and hurt home owners in poor neighborhoods. However, this study was so tortuously contrived and so easily refuted that city council ignored it and continued shifting the tax burden to land values. Statements from development experts who had contradicted the PEL’s desired conclusions were either twisted or ignored by the researchers. For example, former director of economic development Ed DeLuca had said land value tax did encourage development, but thought that further shifts would be necessary to have a sufficient effect. They claimed there was a consensus that the tax had no effect and that further shifts would also have no effect. Donald Stone, professor of economic development at Carnegie-Mellon University’s School of Urban and Public Affairs said that interviewers responded to his positive comments about land value tax by changing the subject. Also, a check of the poor neighborhoods cited in the PEL study showed that most properties paying more were absentee-owned, and that owner occupants actually saved in those neighborhoods. A subsequent study by city finance director Ben Hayllar suffered from exactly the same failure to distinguish owner-occupied from absentee-owned properties. Owner-occupied properties in Hayllar’s own sample also saved in poor districts where he alleged land value tax was punitive.
- Percy Williams was executive secretary of the Pittsburgh Real Estate Board from 1918 to 1921. A Democrat, Williams was appointed to the board of assessors by Mayor Magee, a Republican, in 1922. The first Democrat mayor Appointed him Chief City Assessor in 1934, where he remained until the county took over assessing in 1942. He had been Secretary and a trustee of the Henry George Foundation since it was chartered in 1926 until his passing in 1978. http://savingcommunities.org/docs/williams.percy/gradedtax.html
- Almost all of the testimony against land value tax in the city’s public hearings came from non-city residents within the county, particularly from the affluent Mount Lebanon Township. These suburban residents either owned city real estate or represented organizations of real estate interests. In contrast, most civic leaders and ordinary voters in the suburbs do not live in the four cities that have taxed land values (Pittsburgh, McKeesport, Duquesne and Clairton) and are oblivious to the issue.
- House & Home, Time-Life, Inc., August, 1960, page 115
- “Property and Natural Right,” Letter to James Madison, Sr. from Fontainebleau, France, Oct. 28, 1785
Featured image: A map of Pittsburgh, Pennsylvania with its neighborhoods labeled.
Author: Tom Murphy VII