Dean Baker is co-director of the Center for Economic and Policy Research
Virtually all forecasters are now projecting the unemployment rate to remain high for years into the future. This is the result of the political deadlock in Washington, where the Republican leadership has made it clear that it will oppose any further measures to create jobs.
If nothing happens in Washington, then state and local governments are left to fend for themselves. Unfortunately, state and local governments have two serious disadvantages in the job creation effort relative to Washington. They can’t run deficits, since most are required to balance their budgets. And they can’t print money like the Federal Reserve Board.
As a result, the range of action for state and local policymakers is limited to what they can pay for. With the recession sharply curtailing revenue, that doesn’t leave much money for inventive job-creating agendas. These governments can raise taxes, but there is a limit to how much taxes can be increased without sending business into neighbouring states, even if the political will were to exist.
However, there is one tax that state and local governments can raise without fear of losing businesses or people. They can tax vacant properties.
This is an especially desirable tax in the current economic situation, since the real estate bubble created a glut of both residential and non-residential property in much of the country. Having housing units or commercial properties sit idle does no one any good. People could be living in the housing units and the commercial properties could offer new jobs in stores and offices.
The problem is that property owners often have difficulty coming to grips with the new market environment. They saw the run-up in prices of the bubble years and they expect that these prices will soon return. Rather than accept a lower price to sell or rent their vacant properties, they are waiting for prices to return to their bubble peak.
As a result, these pie-in-the-sky property owners are holding property that returns them no income. And the whole economy suffers as a result of not deriving any value from these idle structures.
A vacant property tax would help these property owners to see reality. By providing an additional incentive to actually use vacant property, this tax could both raise a substantial sum of money and bring down the cost of renting housing and commercial property.
Suppose properties that are vacant for a substantial period of time were assessed a tax of one per cent of their assessed value. (One advantage of this tax is that we already have an assessed value on the books for almost every property in the country.) The value of the nationwide residential housing stock is more than $16tn. In the most recent quarter, almost 11 per cent of this property, or $1.8tn was reported vacant on a year-round basis.
If this property was taxed at just a one per cent rate, it could raise $18bn a year. If a comparable amount was raised from taxing vacant commercial properties, the sum would be $36bn a year. Of course there would be large variations by state. The states that have been hardest hit by the downturn would stand to raise the most from such a tax.
Unlike most taxes, all the side effects from this tax are positive. If property owners don’t want to pay the tax, then they can just rent out their property. Or they may sell the property off to someone else who actually plans to use it. Either outcome would push down residential and commercial rents.
In some cases, property owners may not be able to pay the tax and simply give up the property. That is unfortunate, but it is better that the property be in the hands of someone who can use it productively than have it just sit idle.
Lower rents could provide a major boost to living standards. For middle-income families, rents are often more than 40 per cent of income. If rent fell by ten per cent this would be equivalent to a four per cent increase in wages. Lower commercial rents will mean more stores and other businesses (think of it like a tax cut).
This route would be especially desirable in eurozone countries such as Spain and Greece, where it is necessary to reduce large trade deficits. Since using the euro, these countries have lacked the most obvious mechanism for fixing a trade deficit: devaluing the currency.
The route being pushed by the European Central Bank and the IMF is to have these countries experience an internal devaluation where wages and prices fall to the point where competitiveness is restored. This is likely to be a long and painful process.
However, this process could be made much less painful if rents fell sharply. This would substantially reduce the cost of living for workers in these countries, possibly allowing them to see rising real wages even if their nominal wages remained stagnant or fell slightly.
This is a tax without a serious downside. When you tax something, you expect to get less of whatever it is you are taxing. In this case we are taxing nothing - valuable property being left idle. We want less of that.
The tax is easy to collect and it encourages people to do what we want them to do. It might even be possible to get politicians to consider it.
November 9th, 2013
Click here for this week's full schedule for the State Theatre and Bijou by the Bay in Traverse City, Michigan. The day has arrived. For ...
September 10th, 2013
[View the story "John Kerry's Accidental Diplomacy" on Storify]
July 30th, 2013
Today Bradley Manning was convicted on 20 of 22 counts, including violating the Espionage Act, releasing classified information and disobeying orders. That's the bad news. ...
June 5th, 2013
This past week, the Motion Picture Association of America (MPAA), the main federation of Hollywood's six major studios, posted on their web site a list of what they believe ...
March 23rd, 2013
This evening is going be a big moment in turning our country around on the issue of gun violence. That's why I desperately want you ...
March 21st, 2013
I am hosting a nationwide series of house parties this Saturday night where tens of thousands of people will gather together in living rooms to ...
March 15th, 2013
The response to my Newtown letter this week has been overwhelming. It is so very clear to everyone that the majority of Americans have had ...
September 11th, 2010
OpenMike 9/11/10 Michael Moore's daily blog I am opposed to the building of the "mosque" two blocks from Ground Zero. I want it built on ...
December 14th, 2010
Yesterday, in the Westminster Magistrates Court in London, the lawyers for WikiLeaks co-founder Julian Assange presented to the judge a document from me stating that ...
May 12th, 2011
"The Nazis killed tens of MILLIONS. They got a trial. Why? Because we're not like them. We're Americans. We roll different." – Michael Moore in ...
November 22nd, 2011
This past weekend I participated in a four-hour meeting of Occupy Wall Street activists whose job it is to come up with the vision and ...
September 22nd, 2011
I encourage everyone I know to never travel to Georgia, never buy anything made in Georgia, to never do business in Georgia. I will ask ...
December 16th, 2010
Dear Swedish Government: Hi there -- or as you all say, Hallå! You know, all of us here in the U.S. love your country. Your ...
November 2nd, 2010
This letter contains (almost) no criticisms of how the Democrats have brought this day of reckoning upon themselves. That -- and where to go from ...