Property Tax Pros and Cons

The Household Charge currently being introduced in Ireland is an interim measure pending the introduction next year of a "property tax". It is argued that Ireland is one of the few countries in the developed world that does not levy a tax on private domestic property and use that levy to fund local public services.

The notion of taxing property, or more specifically, land, goes back a long way and is based on the belief that the land and the natural resources on and under the land should be held in common. It is not possible to make a moral case for ownership of land and natural resources to be held exclusively by a single individual or family. Any rent charged for the right to develop and use the land rightfully belongs to the community. A property tax is therefore justified on the basis that it returns to the community a portion of the value generated by use of the land.

Location, Location, Location

Whilst this can readily be seen to apply to commercial uses of land, how can it be applied to domestic property? Especially in the case of the ownership of a single dwelling? The answer can be found in the old estate agent's adage "Location, location, location". Homes that are established close to good public amenities command a higher value than those in isolated locations. It follows that the increased value that arises because of those public amenities should be taxed in order to contribute to the cost of providing those services.

In a paper produced at Dublin Institute of Technology in 2005 Tom Dunne enumerated these arguments and went on to highlight the practical difficulties associated with the implementation of such a tax. It makes interesting reading and we must hope that Enda Kenny and his advisors have studied it. [Land Value Taxation: Persuasive Theory but Practically Difficult, Dublin Institute of Technology School of Real Estate and Construction Economics, 2005]

Tax Bads not Goods

A more thorough examination of the case for a tax based on the increased value of land that arises from community provided services can be found in an earlier article by Nic Tideman which also discusses the practical issues and offers suggestions for ways to overcome them. Tideman also points out that such a tax could be developed in such a way as to benefit the community by taxing only "bads" rather than "goods". Thus a business that imposes burdens on the community such as pollution or traffic congestion, lowering the value of neighbouring property, could be taxed at a higher rate than businesses that are of benefit to the neighbourhood which might even be exempted from the tax. [The Case for Site Value Rating, T. Nicolaus Tideman, Date unknown, originally published by the British Liberal Party]

I found the Tideman article via a website called Wealth and Want. Although this is a USA based site geared to the US economic situation the articles that the site owner has assembled and to which he has provided links are from around the world and relate just as much to the Irish and wider European economy as to that of the USA. He has created an excellent resource for those seeking alternatives to our failed economic system.

I would urge anyone actively seeking solutions to our woes, rather than merely seeking to explain how we got here, to study these articles. In my humble opinion they make a very strong case for a complete re-thinking of our economic system with the potential of ensuring fairer distribution of wealth, at the same time providing greater rewards for wealth creators. As the site's masthead states "... democracy alone is not enough to produce widely shared prosperity"