PROPERTY TAXATION IN RELATION TO INVESTMENT IN URBAN AREAS (Discussion)

Abstract

A FEW POINTS of a footnote character are about all that I can add to Dr. Mitchell’s paper. The imposition of any tax will affect, to some extent, the pattern of consumption, saving, and investment and thus exercise some influence on the allocation of resources. Certain taxes, of course, will have less effect than others and this appears to be the case with the property tax, except for investment in urban rental housing. While there are significant variations in effective rates on different types of property and property in different locations, the factor of deductibility of property tax in computing income tax tends to minimize somewhat the effect of differentials between effective tax rates in different localities; Thus, this factor would simply contribute to the neutral effect of property tax on investment. For manufacturing industry, the tax appears to have exercised little, if any, influence on the incentive to expand plant and equipment. Dr. Mitchell points out that investment in residential rental housing and rental office loft space is probably the most sensitive to property tax burdens. It would seem that the chronic shortage of housing at reasonable prices is, to a significant extent, due to high effective taxes on real estate. The cost of housing now includes a good part of the cost of local government financed through the property tax. Recognizing that an indeterminate part of the tax on land has been capitalized, there is nevertheless some degree of differential tax burden on housing that probably has deterred investment in this field. A few governmental units have attempted to deal with this problem through temporary tax exemptions or exemptions for a limited period for industrial and housing purposes, but apparently these exemptions have not stimulated investment. The discouragement to private investment would seem to be a factor contributing somewhat to the development of public housing projects. People are more aware of a capital value tax in depression than in prosperous years. As Dr. Mitchell observes, the property tax “is in nothing like the exposed position” of the 1930’s; but a decline in the