As stealthily as a cat burglar, the Detroit political machine is crawling through the back window planning to rummage our homes.
The mask it wears comes in the form of a proposed “land value tax.” The idea is to blow up the current system enshrined in the state constitution that prohibits the government from raising your property taxes no more than 5% a year or the rate of inflation.
Under Mayor Mike Duggan’s new scheme, tax on land would triple and the tax on any existing structures on that property would be cut by 30%. This will supposedly ignite development in Detroit by discouraging speculators sitting on 30,000 vacant lots.
Remember, the city’s scandal plagued Land Bank Authority owns 60,000 lots it can’t give away.
The state Legislature would first have to change existing tax law, and then any municipality would have the choice to “opt-in.”
When announcing the plan in May, Duggan waived around a 20-page study with cherry-picked data from Pittsburgh and 18 podunk Pennsylvania towns that have experimented with this idea.
Duggan is conducting backroom meetings and wants to get this to Lansing by month’s end. The public should worry.
First, the study was paid for by Invest Detroit, a consortium of downtown Detroit bigwigs with big buildings who already get big tax breaks. Dan Gilbert, who is saddled with a post-pandemic real estate portfolio of at least 100 downtown buildings, is among them.
Duggan is conducting backroom meetings and wants to get this to Lansing by month’s end. The public should worry.
First, the study was paid for by Invest Detroit, a consortium of downtown Detroit bigwigs with big buildings who already get big tax breaks. Dan Gilbert, who is saddled with a post-pandemic real estate portfolio of at least 100 downtown buildings, is among them.
Only according to Detroit math is that revenue neutral.
But Detroit can’t afford more bad arithmetic. Its revenues are falling (adjusting for inflation). Gilbert struggles to finish his Hudson’s Tower (despite outlandish public welfare). And the Motor City faces a pension cliff. And how would this affect school funding?
Not to worry! There’s that 20-page study, which looks at economic data from those 18 podunk towns plus Pittsburgh from 1994-2017. The author concludes: “that moving from conventional property taxation to a split-rate system is associated with an immediate increase of business establishments.”
The problem here is that only two municipalities in the Pennsylvania study fit this time frame. Ebensberg is a sleepy hamlet of roughly 3,300 people.
Allentown, the largest city in the study with 125,000 people, has had perpetual budget problems since adopting the tax scheme in 1997. The mayor there has warned of tax increases next year.
That’s why no big city in America taxes like this. Not Philadelphia. Not Pittsburgh. Steel City instituted the tax structure in 1913, but dropped it in 2001, after a court-ordered property reassessment caused taxes there to explode.
Are we really going to expose the Michigan homeowner based on the experience of two Pennsylvania backwaters the size of Paw Paw and Lansing?
Grover Norquist, the conservative founder of Americans for Tax Reform, never met a tax cut he didn’t like. Until now. Likewise, Tom Murphy, the former progressive mayor of Pittsburgh in 2001 called the plan dubious.
“I don’t think it’ll work in a place like Detroit,” said Murphy, now a senior resident fellow at the Urban Land Institute. “A land tax like this will only work in a place where real estate is in high demand. Detroit is not such a place. I think it’s a big gamble.”
