Tax Reform for Michigan Cities
In U.S. legacy cities–localities that have experienced population loss and economic disinvestment–local governments struggle to raise property tax revenue without further depleting their tax base. Raising property tax rates concentrates burdens on fewer and fewer taxpayers, which means poorer and less-mobile taxpayers shoulder the costs of disinvestment. Raising rates also discourages capital formation that would help legacy cities recover tax base. Yet the policy options that legacy cities have to cure these disadvantages–like tax abatements for new development–are exclusive, limited in efficacy, and often seen as unfair. Can cities create more inclusive tax relief that supports disadvantaged households, promotes investment, and builds fiscal stability?
Nick Allen, a doctoral candidate at the Department of Urban Studies and Planning (DUSP), has put forward a property tax reform proposal for the city of Detroit as an option for more equitable growth. The reform would replace taxes on buildings and other improvements with higher taxes on land. In a study led by Allen and John Anderson (University of Nebraska-Lincoln), researchers convened by the Lincoln Institute of Land Policy found the reform created nearly universal tax relief for residents, reduced property distress, and increased business formation.
Learn more about the proposal via coverage in the Wall Street Journal
"To raise household wealth and build opportunity, legacy cities have to break self-reinforcing patterns of decline. The study asked whether an option to improve local investment conditions could also reduce poverty and tax inequities. We were excited to find that shifting taxes to land could have all these effects immediately," said Allen. "After commissioning the study with Invest Detroit and the Kresge Foundation, the City of Detroit has looked at options to enable this reform in Michigan cities. State legislators and local leaders have expressed enthusiasm about its prospects in Detroit."
The papers have also been published in a special issue of Public Finance Review.