In any comprehensive description of land use and taxation, Henry George’s idea of “land rents” and the related idea of “resource taxation” (taxing for clean air and water, for example) encourages equally free access for all while providing a basis for funding government that is not only fair, but conserves limited resources. The basic idea is this: Land, since it is intrinsically limited and not created by the hard work or genius of mankind, yet is required by all of mankind’s endeavors, has the peculiar characteristic of belonging to all of society. Since one person’s use of a particular plot of land prevents others from using it, he should pay society a “land rent” for its use.
The same is true with natural resources. One that has been mentioned is a pollution tax – polluters would pay for the privilege of consuming clean air and water, for example. If I burn a ton of coal and use up a volume of clean air to do so, thus depriving my neighbors of it, then I should reimburse them. Because taxation would depend on how much pollution was produced, there is an incentive to limit such pollution as much as economically feasible. Another is a tax on natural, non-renewable resources – things like petroleum, minerals, and the like. Anything that cannot be created by mankind costs society as it is used up.
This idea can be extended to anything else that has societal costs – for example, if alcoholic beverages cause a certain dollar amount of health-related costs and property damage (from drunk driving and the like, as well as more subtle things like missing work because of a hangover), then a tax on those beverages covering the societal cost makes sense. Thus, cigarette, gasoline, and alcohol taxes make sense, although their current level and justification may not.
Now on to the McMansion problem and its solution. One direct offshoot of land value taxation – one that I have not seen discussed elsewhere -- is a “viewshed tax.” To quote Wikipedia, “a viewshed
is an area of land, water, and other environmental elements that is visible from a fixed vantage point.” If someone plops up a huge skyscraper that blots out the sun, then it has an immediate effect on the quality of life – and property values -- for its neighbors, and they should be compensated.
As a personal example, my single-story house used to be in the middle of a field, with a beautiful view of the town where I live, and privacy from my nearest neighbors. The privacy and beauty was worth a lot to me. The owner of the property decided to put in a subdivision, meaning an opaque six-foot-tall fence and an additional seven houses immediately adjoining mine (there were a total of 92 added to the 13 acre lot). To make matters worse, the houses were all 2-3 stories, with ample views of my back yard, changing my location from viewer to viewee.
How should we encourage homeowners to “play nice” in a neighborhood without ruining the viewshed (and the privacy) for existing residents? The simplest method is to charge for the square footage of visible surface area at the same rate as you charge for the square footage of land it sits on. Let’s say you have a 100x100 foot lot, want 2500 square feet of living space, and have three different possible house plans. The land would have a 10,000 square foot base land value tax rate. A 1-story ranch house 25 foot wide, 100 foot long, and ten foot high adds an additional 5000 square feet of surface area (25x100+2x25x10+2*100*10), for a total of 15,000 square feet. If you have a 50’x50’x10’ house, you have 4500 square feet of surface area plus the land, or the equivalent of 14,500 square feet. If the builder decides to make the house a bit more efficient, a cubical 30’x30’x30’ house would have the same amount of visible surface area as the 50’x50’x10’ house and 200 square feet more living area. Going still further, put this house halfway underground, and you’d only use a total of 12,700 square feet of “land value tax.” Home builders would have an incentive to make buildings as compact and out of sight as possible, and there would more interest in underground (and partially underground) housing. In order to make it fair (as well as easier to calculate), we should calculate the minimal surface area of the solid that completely encloses the building. Nooks, crannies, and cul-de-sacs add surface area without blocking the view any more than a more regularly-shaped object. If two or more buildings that are close together could be enclosed with a single larger building with less overall surface area, that surface could be used instead. This could include buildings on adjoining properties, which would further encourage efficient, compact, multi-unit housing.
With the creation of any structure, there is going to be land moved around the structure to make it more amenable to the people living there. To take an extreme case, consider the top of a mountain. If the owner decided to blast the peak away, and build a structure just below the original surface but now clearly exposed, he might argue that since he is underneath the former ground level, he should not have to pay any taxes based on the exterior surface area. Or the converse case, a person could build a house, then dump loads of soil over it to create his own artificial peak, and claim no additional taxes because he is under the current ground level. The solution is to consider the lower of the two values (current or previous ground level) when determining the surface area of structures. A person could still blast away a peak, put up a mansion, then rebuild the peak with the removed soil, and only be charged for the actual area of the exposed structure.
This can lead to another problem, of which I have first-hand experience from the construction around my home: building up the land in one area so that an adjoining area has an increased risk of flooding. Even if a homeowner is charged for the exposed area of structures, bulldozing the land so that the “level” portion is several feet higher than the surrounding area still alters the landscape and inconveniences the neighbors. One solution would be to come up with a rate based on the soil volume displaced. You could pick a standard in keeping with the “surface area” approach, either the surface area of the cube or sphere of volume equivalent to the displaced soil, or a straight fee per volume could be enacted. This could be further extended to things like mining and oil and water wells (where the person pumping is charged a “volume fee” in addition to pollution taxes and land use fees).
There are a couple of questions that need answered. First, how do we classify living quarters that are also vehicles, (like travel trailers), former vehicles that have been turned into housing (converted school buses and airliners for example), and “vehicles” that are moved only once (mobile homes)? The simplest method is to count their exterior surface area the same way as fixed housing. We can also add automobiles, pickups, and other standard vehicles – a car wouldn’t add that much to the cost, but a tractor-trailer (which actually blocks a fair amount of view) would be charged accordingly. If desired, a vehicle that is housed in a garage could be covered by the “enclosed space” rule, though there would have to be some way of making certain the vehicle was indeed stored there consistently and not parked in the driveway or on the street while the garage was used for storage. In addition to garages, barns, storage sheds, and outhouses block the view just the same as anything else, and should be charged accordingly.
And now for something a bit more esoteric – what about radio towers, bridges (and other scaffold structures) and fences? For radio towers and bridges, simply calculate the smallest simple closed surface that would completely enclose it. Fences are a bit different – they can range from a single strand of barbed wire all the way to solid brick walls, and they can be a simple divider to a completely enclosed space. A simple rule would be that if an average adult can walk normally through a space (no ducking, climbing over, or turning sideways), then that space is not considered part of the fence or structure. This would count three-strand barbed wire the same as chain link and solid wooden fences of the same height.
Hedges would be a special case: as living things that generally enhance privacy and value without annoying neighbors, they should be exempt from “surface area” taxes unless they are seamlessly connected to non-living or man-made barriers. “Seamlessly” would mean the “normal adult walking through it” rule – if there is a gap between living and man-made barrier large enough for a normal walkway, then only the manmade section is charged; if the gap is narrower than that (with a fence, gate, wall, or other obstruction), then the entire exterior surface is calculated.
Another set of structures that needs to be considered are roads, parking lots, sidewalks, and other paved areas. There are two extremes: totally natural, where a path is made by the actions of humans and vehicles directly on the soil, and totally artificial, where the surface is paved with manmade materials and impervious to water and plants. With “totally natural” paths, the land tax should remain the same as unimproved land. For minor improvements – loose shale, gravel, pumice, etc. – there may be the determination that only a percentage of the improved surface is counted, though this would have to be studied to make certain it is not a possible loophole. At the other extreme, if concrete and asphalt pavement was counted the same way as natural land, the Wal-Marts of the world would have an incentive to having acres of parking lot instead of using the land more efficiently with parking garages. The entire surface area of a paved road or sidewalk should be counted as any other manmade building and charged the full land tax.
A further annoyance: signs and billboards. As Ogden Nash said:
I think that I shall never see
A billboard as lovely as a tree
Perhaps unless the billboards fall
I’ll never see a tree at all
Signs, billboards, and other advertisements on public display can be counted as part of a building structure (if attached or near enough to a structure) or as freestanding “improvements.” Companies would have an incentive to build such advertisements into existing structures rather than sticking billboards around town. The latter would still be legal, but the additional “viewshed” tax would tend reduce their number and increase dual-purpose use.
There is also the question of other viewshed items that don’t belong to the class of structures, vehicles, fences, pavement, and signs. It can be from something as desirable as a swimming pool to as unwelcome as a junkyard. There are many possibilities, but perhaps the easiest to understand conceptually is the “tarp test.” The tarpaulin with the minimum area that can completely cover one or more manmade objects represents the area subject to the viewshed tax. There can even be tarpaulins designed with a square-foot or square-meter grid, so a tax assessor or interested person could easily estimate such areas, or as proof in case there is a dispute.
Finally, in order to close any potential loopholes, any activity that lowers the property value in an area should require the person doing the activity to pay for the difference. Someone putting up an incinerator, junk yard, or other undesirable structure – or even one that leaves uncut weeds and trash to make the area look like a slum – should reimburse his neighbors (indirectly, through taxes) for any assessed value lost. For the converse, anyone who puts up something that raises the value of his neighbors’ land (reflected in higher assessed land rents) – say, a park, or something that beautifies the neighborhood -- should receive a reward from his neighbors. Things that lower value should be paid at the time of occurrence, while things that raise value should have the increase split between the government and the person doing the improvements at the time land rents are paid. A person who raised the value of his neighbor’s land by $1000 might get a $500 rebate, with the remaining $500 increase in neighbor’s taxes split between federal, state, and local governments. This is to not only reward people for improving their neighborhood, but to encourage government to help them do so. The ratio might be set differently, though there is something appealing and easy to calculate about an even split.
One further addendum to the concept of land and viewshed rents: competitive bidding for land. Local government should have an assessor for both property and for the visible improvements cited above, but how do we make sure such assessments accurately reflect market value? The solution is to allow anyone to competitively bid on the rental value of a property by putting down a year’s land/viewshed rent as “earnest money,” plus agree to pay the current resident the amount necessary to replace all physical improvements and move all personal property. The current resident would have one year plus the time until the next “land rent” payment to match the amount. If they match it (thus raising their annual rent and possibly forcing an adjustment for the land rents of surrounding properties), then nothing changes except for the amount of taxes paid, and the bidder can either raise or drop their bid . If the current residents fail to match it (or any higher bid) in the time allowed, the property is transferred to the new residents, adjustments are made in the amount paid by surrounding property owners, and the former residents receive a lump-sum check for the replacement cost of their physical improvements and moving costs.
This would neatly sidestep the issue of a business convincing local government to condemn a person’s land in order to increase tax revenue (such as in the recent Supreme Court decision) – the neighborhood could opt to match the amount, and if they could not they would have the chance to build a new house and have moving expenses taken care of. On the other hand, a single homeowner would not be able to hold out for vast sums of money, either, at least without being willing to pay higher taxes for the privilege.
How would such taxes be collected, and who would get which portion? Well, the taxes could be assessed nationally, with a base value given to all areas depending on location, national infrastructure and services that affected its value, and the like. Each state would be liable for the portion of the land not under federal control. States could add their own portion for their “value added” infrastructure, as could counties and cities, with the change in value paid for by the land holder. This means that if Oregon (for example) made a state road, they would reimburse the federal government for the land and the surface area paved, but would receive a rebate from the federal government for any federal land value increase, and an increase in taxes for any citizens whose land increases in value. The land “owner” could pay either locally (in which case the appropriate funds would be disbursed to the state and federal level) or they could pay all funds to a national service – like the current IRS – with that agency sending the appropriate funds to state and local government.
Such “land rents” and viewshed taxes could be collected annually, like property taxes and most income taxes are now. Unlike income taxes, they would be charged for the following year rather than the preceding one, and a refusal to pay would result in eviction, just like not paying rent on an apartment would.
Let’s assume for a moment that a combined land/viewshed tax was put into effect, with the reduction or elimination of sales and other taxes to make it revenue neutral. What results should we expect?
1. More efficient use of land. There would be no incentive to keep lots vacant – they would either be developed or revert to government control to prevent taxes. Lots would be large enough to comfortable fit the building desired, but no larger – oversized lots would not be quite the selling point they are today.
2. Since there would be a definite tax advantage to doing so, buildings would be more compact, with less urban sprawl and “big box” retail spaces. Wal-Mart and other stores would be less likely to be one-story behemoths, and more likely to be multi-story buildings at least partially underground and out of view.
3. McMansions would have an economic disincentive – since the surface area of the structure is added to the area of the lot, a monster house in the middle of a subdivision of normal houses would pay a larger share of the taxes.
4. As underground and partially underground homes, factories, and commercial buildings become more attractive, they become safer from a wide variety of natural and manmade disasters – fire, tornadoes, nuclear war – and as skyscrapers and other buildings become shorter and broader, they become more resistant to earthquakes and less attractive to terrorist attacks. Only mildew (from the typically cooler exterior walls), radon buildup, and flooding would be more likely in underground buildings, and there are building methods to prevent the first two, and placement (i.e. in an area without flood danger) would lessen the chance of the third.
5. In addition, there would be more incentive to make parking more compact, either with multilevel parking garages or something similar. You would have to balance asphalt sprawl with doubling your taxes for that area, depending on the land value it may be worthwhile to forego multiple acres of pavement for something with a smaller footprint or included in the building itself.
6. As surface areas diminish, heating and cooling become more efficient as well. A residence or business that is tax efficient will generally be energy efficient as well.
7. Fewer signs cluttering up the landscape, and more dual-use structures (like advertisements on the sides of buildings).
8. Fewer fences (and those both shorter and enclosing smaller areas) breaking the free travel of humans and animals.
9. People would take better care of their property, and strive to be good neighbors. There would be a financial disincentive to lowering neighbor’s property values, and a definite financial incentive to activities that improve the neighborhood.
10. A healthy property market: the state would be interested in development (since they are liable for tax receipts to the federal government), while individuals and corporations would be interested in minimizing expansion to profitable levels. This tension would ensure that the state did not place undue impediments in the way of business, yet would seek to have as broad a tax base as possible.
11. An increase in trade and value creation. Since wealth would be held in things that are made by the hands of man and not in land, there would be an incentive to emphasize the former and conserve the latter. Taxes would be based on the cost of items and activities to society as well as land rent, while taxes on trade would be reduced or eliminated.
12. Skyscrapers – which are remarkably efficient horizontally and remarkably inefficient vertically – would be reduced in height and number. More compact buildings – variations of cubes, domes, and the like – would be more popular than spires and minarets.
13. More powerlines would be moved underground, especially in areas with high land values. Not only does this improve the appearance of neighborhoods, it increases public safety (fewer downed powerlines or crashing into "telephone" poles).
There are, of course, arguments against such a comprehensive tax change. Here are some of them, plus my response:
1. Neighborhoods would become more crowded, and builders tried to cram as many buildings in an area in order to reduce taxes. Buildings would be more likely to squeeze as close to the property line as possible, to take advantage of the “larger enclosure” rule.
This not a bad thing. If you have a city of 100 square miles and 100,000 people, and afterward have 100,000 on 50 square miles, since land is not created nor destroyed, you have 50 square miles to use for other activities – hiking, recreation, parks, or even additional industry. A smaller city footprint is also more efficient from a transportation and service standpoint.
2. Property owners would lose something that may have been in their family for generations.
Only if they did not pay the actual land rent cost, which would indicate they were not using the land as efficiently as possible. Since people already pay property taxes – which are a version of land rents, though unfairly extended societal improvements rather than just societal costs – they are already paying a land rent and an additional improvement rent. This would be replaced by a land and viewshed rent.
3. People living where water tables are high (e.g. New Orleans) would be disadvantaged compared to those living where they are low (e.g. Las Vegas), because underground structures and similar tax reduction methods would be cost prohibitive.
This is actually a positive. People should prefer to live on higher ground, not under sea level or in a known flood plain. Flood insurance gets passed off to the insurer of last resort – the federal government – which means that it is paid for by all of us.
4. It would be difficult to administer taxes based on surface area.
Not any more (and I would argue, far less) than the myriad of local, state, and federal income taxes, property taxes, and sales taxes. Since the tax is based on what is directly observable – land, and manmade objects built or placed on it – and not on things easily hidden or underreported (income, purchases), it closes a lot of possible cheats and loopholes. The “Tarp Test” and using the minimum enclosed surface area are actually quite straightforward when compared to a building's actual value (which often requires an assessor to actually enter the structure to tell its construction and what it contains).
5. The government would get too much/too little tax to pay for necessary services.
This is an easy one. If it’s too much, get the budget on accepted accounting practices, pay off the national debt, and then rebate the rest of the money equally to all American citizens. If it’s too little – something I seriously doubt, since it would be uniform and without loopholes – then keep one or more of the other current taxes until the budget is balanced. Frankly, I believe there would be a surplus, at least until Congress decided to spend it (which is why I stress putting the government on standard accounting practices and paying off the debt).
6. Farmers and others that require large plots of land would be hit extraordinarily hard, or we would see enormous increases in food prices.
Since farms are typically not in the center of big cities – where land prices are the highest – and don’t involve covering the land with buildings (usually a barn, a handful of sheds and silos, a greenhouse, the home itself, plus fencing), their cost would be toward the cost of unimproved land. In addition, flood plains are attractive areas to farm (because of the fertile land), and by making it less attractive for regular homes, more would be available for farming. Any increases in tax rates would be shared among all farmers, so there would be no disadvantage for any particular one (in fact, it may make huge factory farms a bit less attractive than family farms, if the latter can show more productivity per acre). If such a broad-based tax did raise the costs for farmers as a whole, food prices would increase uniformly, though this would be at least partially offset by the reduction or elimination of sales taxes. The actual result would be to shift the tax burden to where it belongs – the raw materials necessary for everyone – and away from hard work.
7. The elderly would be particularly hard hit. After spending a lifetime paying off a mortgage and purchasing a home, they could lose it to “land rent” or a bidder who wants their property.
They can lose their homes now, either by eminent domain or by failing to pay property taxes. They would still own their home, and if someone bid on the land rent, they could match their price, or if that was not possible, they would receive the replacement cost for their home and have a new one built in a less expensive area. The requirement that a person pay the replacement cost (and not just the fair market value, which may be less because of depreciation) means that while land is not kept from its most efficient use, neither is it transferred willy-nilly.
8. Changing from current tax rules would result in confusion and economic disruption.
This is a fair criticism. Any change in taxes would do the same thing, as people struggle to minimize their taxes and governments struggle to maximize revenues. After that period of disruption, however, the tax code would be much simpler, broader based, and fairer.
9. As taxes on visible area push homes underground, it increases their cost.
True, it increases the upfront costs, but in addition to improving -- or at least not degrading -- the view of neighbors, heating and cooling costs would be reduced, as would insurance rates (except for flood insurance in areas prone to them). In addition, while the home would require extra waterproofing for the area below ground, it would require less maintenance (paint, cosmetic repair) than a similar home above ground.
For those who are interested, feel free to discuss or argue with any of the points I’ve made. I actually wrote this down originally because of several discussions on Fark.com covering McMansions, and I thought it would be more efficient to put my arguments in one location for future reference.