A recent Los Angeles Times op-ed by three professors at UCLA’s Luskin School of Public Affairs suggests the way to raise revenue to deal with homelessness is to tax land because “housing scarcity delivers unearned wealth to people who own housing.” This tired argument of taxing land wealth ignores two important principles: ability to pay and the question of whose asset is it—the homeowner or the state?
While the article focused on suggesting an alternative tax-raising mechanism to the linkage fee proposed by Mayor Eric Garcetti that would tax new development to fund housing for homeless, the proposal is built on the idea that land value increases over time, creates wealth for the property owner, and is a worthy target for taxation.
Property value increases are paper profits, not coin of the realm. Just because a property has increased in value does not mean the homeowner has the ability to pay new taxes. Look no further than California’s famous Proposition 13 tax revolt. The rebellion against increased taxes because of rising home values was based on the homeowners’ lack of ability to pay to keep up with the taxes.
In the article, the authors suggest a “modest” $3 a day tax to fund homelessness prevention projects—a spin on the traditional pro-tax argument that it is only the price of a daily cup of coffee or some other commodity that is being sacrificed for the “greater good.” Those pennies on cups of coffee add up, as do a daily tab on land.
Take your calculator and multiply $3 a day by 365 days. That adds $1095 to a property tax bill, quite a burden for many property taxpayers.
Anticipating a call to collect the tax once the property is sold and the paper profit is turned into real dollars, the question must be asked who is entitled to that money? While the professors charge that the wealth is unearned, homeowners who care for their property, pay for repairs and keep up with tax demands are entitled to reap the revenue to help the homeowner buy a new dwelling or deal with a medical problem or fund retirement. The so-called wealth doesn’t belong to the state.
To the property owner, he or she is not sitting on hidden wealth, but a source of potential revenue to take care of expenses or offset future financial needs.