NCPA - National Center for Policy Analysis

Philadelphia Considering Tax Reform

February 3, 2004

Philadelphia is considering a two-rate property tax system to encourage development on vacant land, a move that proponents say will stop penalizing those who wish to invest in their land. Known as the "two-rate" or Land Value Tax (LVT), the system reduces the property tax on structures and increases the tax on vacant lots:

  • Under the current property tax system, a $50,000 plot of land is taxed at $500, while adding a $75,000 structure to the land would raise the taxes to $1250 -- penalizing those who wish to build.
  • Under the Land Value Tax system, a $50,000 plot of land is taxed at $875, while adding a $75,000 structure would incur no taxes at all.

Reducing the tax on structures and increasing the tax on land would encourage property owners to efficiently use their properties and discourage speculators from holding land, thereby countering slow economic growth and neighborhood blight.

Philadelphia receives 22.5 percent of its property tax revenue from land tax, and 77.5 percent from structures; however, the city's Tax Reform Commission would like to change that, and structure the tax system so that revenues received from land and buildings are about 50/50.

Currently, 18 cities, one school district and one special district in Pennsylvania have implemented the LVT. The city of Harrisburg has experienced considerable success in improving its economic growth and quality of life through the LVT.

Economist Florenz Passman of State University of New York at Binghampton has compared the cities using two-rate tax systems to those using the conventional tax system, and has discovered that job growth and housing construction have flourished under the two-rate system.

Source: Chuck Metalitz, "Philadelphia Weighs Property Tax Reform," Budget and Tax News, Heartland Institute, December 2003.


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