Two-Rate Property Tax Offers
Alternative To Current System, According To UNH Economics Professor
Contact: Lori Wright
UNH Media Relations
July 6, 2005
Editors: Professor Richard England is available for interviews
and can be reached at 603-862-3335, or Richard.England@unh.edu.
A copy of England’s published report, “Assessing the
Distributive Impact of a Revenue–Neutral Shift from a Uniform
Property Tax to a Two-Rate Property Tax with a Uniform Credit,”
is available at http://www.unh.edu/news/docs/rengland_propertytax.pdf.
DURHAM, N.H. – Bring up the issue of property tax reform and
you’re likely to get an earful.
Richard England, economics professor at the University of New Hampshire’s
Whittemore School of Business and Economics, has heard the arguments
and is offering an alternative to the most important source of local
government revenue, the property tax.
Instead of a single-rate property tax, England advocates a two-rate
property tax system, with a lower tax on buildings and higher tax
on land, coupled with a uniform credit on each tax bill. According
to the research, which was is published in the June 2005 issue of
National Tax Journal, a system that taxes land values more heavily
than building values would encourage building maintenance and new
construction. It also could stimulate commercial and industrial
activity, thereby promoting income and employment growth.
"Our research suggests that a two-rate property tax would be
good for local economic activity, especially in New Hampshire's
cities. It would also help to preserve open space by encouraging
larger buildings on smaller lots," England says.
England and a fellow economist at Ohio State University focused
their research on Dover, N.H., which they chose because the city
has a "landscape ranging from a traditional central business
district to suburban shopping centers and office parks to undeveloped
farmland. Its housing stock ranges from aging apartment buildings
to new condo projects and from modest ranch homes to expensive waterfront
The two researchers calculated the tax bills that every Dover property
owner would pay for various combinations of tax rates on land and
buildings and tax credits. According to Professor England, "We
discovered that if buildings were taxed at $10.98 and land at $34.10
per thousand, and if every property received a $1,000 credit each
year, then a large majority of homeowners in Dover would get a tax
cut from City Hall. Almost all condo owners would also get a tax
break. The tax hikes to keep the city budget at the same level would
go mainly to owners of shopping centers, office parks and large
parcels of undeveloped land waiting for development."
More than a dozen cities and towns in Pennsylvania, including Pittsburgh,
Scranton and Harrisburg, have operated under the two-rate system.
In 2002, Fairfax City , Virginia, was permitted by its state legislature
to adopt the two-rate tax structure. This year, a bill has been
filed in the Connecticut legislature to enable the state's cities
to adopt two-rate property taxation. "Although two-rate taxation
has been restricted to Pennsylvania until now," England says,
"interest seems to be spreading. It is being seriously considered
now in Virginia, Minnesota and Connecticut."
New Hampshire has one of the lowest overall local and state tax
burdens in the country, ranking 49 out of the 50 states, according
to The Tax Foundation. But with no sales or income tax, it heavily
relies on property taxes to fund local and state government. "Lots
of people resent paying their property taxes because it means coming
up with a wad of cash once a year. But at least it's a reliable
source of revenue to pay the salaries of teachers, firefighters
and police officers. What we need to do," England says, "is
reform the property tax to make it a better tax."
After completing his research project funded by UNH and the Lincoln
Institute of Land Policy, England concluded that it’s possible
to design a property tax reform proposal that promises to cut the
tax rate on building values, hold tax revenue constant, and avoid
regressive impacts on most homeowners. “If the authors of
such a reform proposal wish to achieve these three policy goals,
then they need to incorporate a credit provision in their plan,
along with the introduction of dual tax rates, and also fully account
for local circumstances,” according to the study.