The Perfect, Unpopular Tax
By Damian Vladimiroff
Four months into his term, Mayor Zohran Mamdani is caught in an inescapable loop over the municipal budget. As Albany and Gracie Mansion lock horns over Mamdani’s calls for higher income taxes on New York’s wealthiest to close the city’s budget deficit, the horizon for his large-scale affordable housing projects is waning. While the Mayor’s proposal of raising taxes has stoked anxiety among moderate New York Democrats, should they call him on his bluff, the Mayor would have to follow through with higher property taxes on homeowners. However, such tax hikes would only cast the Mayor’s campaign promises on affordability even further from sight.
If Mamdani skims on his promises for housing reform to satisfy short-term budget concessions in his most politically crucial year, he will leave New Yorkers amid a slim-pickings housing market, skyrocketing costs of living, and a burdensome municipal tax structure. As of 2022, 77,000 parcels qualify as either vacant or only partially developed to their full zoning limits. And although job growth saw a 22-percent increase in the pre-pandemic decade, approximately just 0.19 housing units were added for each new job.
The mayor’s solution to tackling the tax-housing-budget triangle is a progressive staple: a wealth tax. His detractors, however, rebut against hiking high earners’ tax liabilities, which buoyed amid the pandemic and are the highest in the nation. But while much of the discussion of NYC’s revenue stream orbits around its progressive income tax system, the burden on property is highly regressive. Property taxes account for a majority of City Hall’s tax revenue, with middle- and low-income New Yorkers contributing more of their individual incomes to property taxes than the wealthy. Even more detrimental to the city’s economic life, the realty industry notoriously exploits labyrinthine property tax and municipal zoning codes to avoid improving buildings in ways economically beneficial to tenants.
As Mayor Mamdani tries to tap into new revenue streams, another alternative arises: a tax on land. A bill currently under consideration in the New York State Senate would authorize municipalities to develop and implement a tax system known as land value taxation (LVT). The proposal has potential for New York to incentivize meaningful structural growth and realize a new, radical tax structure that could alleviate financial burdens on middle- and low-income residents. Moreover, because LVT incentivizes markets to build more densely, efficiently, and to consumer preferences, it could transform the very urban facet of New York to be more liveable for the middle class.
Critics argue that property taxes punish landlords for making upgrades, costs which they then pass on to tenants. However, since the land itself doesn't change, a fixed land tax wouldn't discourage building improvements. Instead of property or income taxes, landowners would have more financial leeway to develop their properties to the optimal level of efficiency, reducing underdevelopment and meeting consumer housing demands.
Although historically a black sheep, LVT has recently recirculated as a golden hypothetical among urban reformers and academics. Economists on both sides of the ideological spectrum, from Milton Friedman to Columbia's own Joseph Stiglitz, praise LVT’s potential to counter inequality, speculative land holding, and market inefficiency.
The proposal has already made its way from the parochial halls of academia to the world of policy-making. In Detroit, Michigan, Mayor Michael Dugan unwittingly implemented a land tax in order to rid the city of derelict speculative holdings, overseeing the demolition of at least 25,000 blighted homes for new development. Similarly, from 2002 to 2011, Altoona, PA, implemented LVT with promising early results on citywide real estate value and household cost burdens. However, Altoona later repealed it following poor government communication on the tax’s nuances. And although stopping short of a full endorsement, modeling published by Federal Reserve Bank of New York found that should LVT be implemented in NYC, population, infrastructure and property improvements would double, and private investment would triple. Moreover, a 21.5 percent rate on land, according to the Federal Reserve, could match City Hall’s budget.
Coupled with meticulous policy research, meaningful tax breaks on the working class, and streamlining arcane and outdated zoning regulations, a localized version of LVT could transform New York’s urban facet to one feasible for a middle-income family to actually inhabit. Supporting the Albany bill’s passage would offer the progressive Mamdani administration a pristine victory that is financially bold, economically transformative, and largely City Hall’s political onus.