Tax Land not Buildings
19 September, 2013
There is plenty of conversation about local self government in Georgia but it tends to focus around boundaries and elections and spheres of competence rather than on tax. But where the money comes from and where it goes is usually the best way to look at these things. Currently almost all state revenues are national and come from VAT, income tax, and import tariffs. Taxing something discourages it, so VAT raises prices and makes people buy less, an income tax
discourages employers from hiring people, and import tariffs makes goods that are imported more expensive so increases prices on imports.
In most of the world cities and local governments tax buildings, this is called property tax. The rates vary but usually people who own a house or building will have it assessed periodically and have to pay a percent to the local or city government. Some time agricultural land will also be taxed. In general these rates are low because they are local taxes. Georgia has unusually low property tax because people know that it is being charged, they actually have to pay it. VAT and income tax is invisible to the buyer and employee. The seller and employer is well aware of it, of course. But almost everywhere and especially in Georgia, property tax is a small portion of the overall tax burden.

Currently around the world cities are looking carefully at changing property tax from taxing buildings to taxing land. The problem with taxing buildings is that it discourages building. If you are a wealthy investor and have an old building just sitting there, you don't have to pay much tax, you can just wait around until it becomes more valuable at some point and sell it then. So this creates vacant or poorly used buildings. If on the other hand the land itself is taxed, then the people who own it have powerful incentives to do something useful with it.

In a city or state with this type of Land Value Tax, a building where there are ten apartments in a building on a set piece of land, will divide up the tax owed on the underlying land ten ways. If there are a hundred appartments, then they divide it one hundred ways. The more densely populated the area, even if the land is more expensive, the individuals will smaller more densely clustered appartments, will still pay lower taxes. This helps people with less money, and encourages environmentally responsible building.

In an agricultural area, it would lead to more people working on the land where they live. It would discourage people abandoning houses in villages and absentee investors buying up large pieces of land.
It seems like a small detail but like any change to a tax system, it would have big consequences. It would be easy to collect and quite transparent unlike taxing transactions which can more easily be hidden. This style of tax has been implemented in Sydney, Copenhagen, Pennsylvania and many believe is responsible for the steady long term growth in Taiwan and Singapore. Economists, including even the very conservative Economist magazine believes it is the best possible tax, or the tax with the fewest down sides or distortions. It helps regular people, renters and those who own their own houses or appartments, but taxes speculators, so it prevents great shifts in housing prices which have been such a big problem in so much of the world in the last ten years.

Georgia's tax system has the great benefit of being simple compared to most other countries. As the the majority in parliament looks at policies that will benefit everybody and lead to steady long term economic growth, they should look seriously at the Land Value Tax.