An idea on tax reform

This year the Arkansas Tax Reform and Relief Legislative Task Force proposed various changes to taxes on income, sales receipts, and property, among others. Despite the task force’s name, however, I see hardly any true tax reforms.

You can think of taxes as tools a society can use to influence people’s decisions. Put simply: Taxes discourage the thing being taxed. Sales taxes discourage consumption by increasing the cost of goods, income taxes discourage working by decreasing the marginal gain from working more hours, property taxes discourage improving the value of your home through renovations and likewise, and so on. However, these are all things we typically want to encourage. I find it odd that our current tax system—a mash-up of taxes on income, property, sales, etc.— essentially discourages these activities and increases the cost of complying with the tax law, and none of the task force’s proposals seem to address that.

One oft-underutilized tax tool that could greatly simplify taxation at virtually every level of government is the Land Value Tax (LVT), a tax on unimproved land (i.e., natural resources). LVT discourages land speculation or “squatting,” and encourages efficient development of land (e.g., fewer lots left vacant or relegated to parking). These qualities have prompted many towns in Pennsylvania, for example, to adopt a split-rate system where land is taxed at a greater rate than buildings.

We should go even further by shifting entirely to taxing unimproved land. A 2015 Bureau of Economic Analysis study estimates that the value of Arkansas’ land is roughly $224 billion. Given that, we could meet the state’s 2018 gross revenue of $6.7 billion with a 3 percent tax on land while eliminating state sales and income taxes. EDDIE RINGLE Cabot