The Land Value Tax Revolution: How Philly Could Finance Its Future

Yes, yes—I'm still on my LVT bender.

TL;DR: Replacing all of Philadelphia's taxes with a Land Value Tax (LVT) of about 5.5% would redistribute the tax burden more fairly, encourage development, lower housing costs, and make the city more fiscally sustainable. This shift would benefit working-class homeowners and businesses, while penalizing land speculators, creating a more equitable and efficient system where the city's most valuable resource – land – works for everyone.

Every budget season, we go through the same dance in Philadelphia: debates about wage tax cuts, business tax adjustments, and property reassessments that leave homeowners feeling squeezed. But what if there was a simpler, more equitable approach to funding our city?

Let's talk Land Value Tax – the most underrated fiscal tool in the urban toolkit and possibly the key to unlocking Philly's potential. I know I mentioned it in On Taxes, but this time we’re going deeper.

The Napkin Math Revolution

I've been crunching some numbers on what it would take to replace ALL of Philadelphia's taxes with a Land Value Tax. For the uninitiated, LVT taxes only the value of the land under a property, not the buildings on it. This encourages development (since improving your property doesn't increase your tax) while discouraging speculation and land hoarding (and parking lots).

Here's the math:

• Philadelphia's total property value is approximately $230 billion

• In urban areas, land typically represents about 40% of property value

• That gives us roughly $92 billion in land value citywide

• The city needs about $5 billion in annual revenue

• To generate that revenue solely from land value: $5B ÷ $92B = ~5.5% tax rate

That's it. A 5.5% tax on land value could replace ALL city taxes – wage tax, property tax, business taxes, sales tax—all replaced with one beautiful, wonderful tax.

Who Wins, Who Loses?

Let's break down how this would affect different Philadelphians:

The Working-Class Homeowner

Take a median West Philly home valued at $180,000. Under LVT:

• Land value portion: $72,000 (40% of property value)

• Annual LVT at 5.5%: $3,960

That's about $1,500 more than the current property tax bill. But wait – let's look at the other taxes eliminated:

• Median West Philly income: ~$39,000

• Current wage tax (3.75%): ~$1,462

• Sales tax (estimating half of income spent on taxable purchases): ~$390 (2% city portion of sales tax on $19,500)

Total tax savings: $1,852, against that $1,500 property tax increase.

The working-class homeowner comes out $352 ahead. Every year. Even while owning land.

It is worth noting, too, that these are assuming the “flat rate” calculation for land values: 40% of property value translates to the land value. But in reality, the numbers are likely even better.

The Center City Parking Lot

Now for the fun part. Let's look at that surface parking lot at 8th and Market:

• Current value: $37.5 million

• Current property tax: ~$525,000

• Under LVT at 5.5%: ~$2 million

That's a nearly 4x increase! With estimated annual revenue of $1 million, this lot either needs to:

1. Substantially raise parking rates (making driving and parking downtown even less attractive – win!)

2. Develop the land into something more productive (housing, offices, retail – win!)

3. Sell to someone who will do one of the above (win!)

No matter what, that prime downtown land stops being wasted on car storage. The invisible hand suddenly gets very visible when it's slapping speculators upside their portfolio.

The Business Case

Philadelphia's current tax system is notoriously hostile to businesses. The Business Income and Receipts Tax (BIRT) hits companies with a double-whammy:

• ~1.4% on gross receipts (regardless of profitability)

• ~5.8% on net income

This means businesses pay taxes even when they're losing money. Add our wage tax burden, and it's no wonder so many companies choose King of Prussia over Center City.

Under LVT, the transformation would be dramatic:

Manufacturing/Industrial

Consider a manufacturing business with a $2 million facility on land valued at $500,000:

• Current system: BIRT + property tax + employee wage tax burden

• LVT system: 5.5% on $500,000 = $27,500 annually

For manufacturing businesses that need substantial buildings but relatively less valuable land, LVT represents a huge win. They could expand production spaces, add equipment, or hire more workers without facing additional tax penalties.

Office-Based Businesses

For a professional services firm in a Center City high-rise:

• Current system: BIRT (on all revenue) + wage tax burden on high salaries

• LVT system: 5.5% on their portion of the building's land value, via rent

A law firm grossing $5 million would save $310,000 on BIRT alone, not counting wage tax savings for their employees. And because LVT remains the same, regardless of the number of tenants—the more a landlord builds, the less they charge each tenant in “passthrough tax” the way they do with property taxes.

Retail and Restaurants

Small businesses in neighborhoods face particular challenges under our current system:

• Current system: BIRT (which hits retail's high-volume/low-margin model especially hard) + property tax + wage tax burden

• LVT system: 5.5% tax on land value. That’s it.

A restaurant in a renovated storefront currently gets taxed more for investing in their space. Under LVT, they could renovate, expand the kitchen, or add seating without triggering higher taxes.

The Startup Advantage

Think about a tech startup under both systems:

Current System:

• 10 employees at $80,000 average salary = $800,000 in wages

• 3.75% wage tax = $30,000 wage tax burden on employees

• After achieving $1 million in revenue, faces $58,000 in gross receipts tax

• Likely to relocate to suburbs once profitable (to dodge the additional 1.4% tax on profits)

LVT System:

• No wage tax burden when recruiting talent

• No penalty for growth and profitability

• Minimal land footprint means minimal LVT exposure

• Benefits from improved urban environment and development

This transforms Philadelphia from a tax-hostile environment for startups to one of the most attractive places to build a company in the region.

The Domino Effect

What happens when we implement this system citywide?

1. Development Accelerates: Building improvements don't increase your tax bill, so there's no penalty for developing land to its highest potential.

2. Housing Supply Increases: All those vacant lots and underutilized properties suddenly become financial liabilities unless developed, flooding the market with new housing.

3. Rents Decrease: With more housing supply, rental prices drop. Economic theory has its moments when you stop stacking the deck in the wrong direction!

4. Business Growth: Companies can expand, hire, and invest without triggering higher taxes, making Philly competitive with suburbs.

5. Commuter Exploitation Ends: Non-residents can no longer extract wealth from Philadelphia the way they currently do with parking lots and land speculation.

6. Tax System Simplifies: One tax to rule them all means lower administrative costs and fewer loopholes.

7. Fewer Empty Storefronts: The carrying cost of vacant retail spaces would increase, incentivizing landlords to find tenants at market rates.

8. Talent Attraction: Employees keep more of their paychecks, making Philly jobs more competitive with suburban alternatives. (>50% of Philadelphians commute out of the city for work. That’s nuts.)

The Competitive Edge Restored

For decades, Philadelphia has watched businesses flee to the suburbs for tax advantages. Under LVT, that calculus fundamentally changes:

• Without wage tax, folks don’t choose to live elsewhere to save 3.75%

• Without BIRT, city businesses don’t choose to locate elsewhere to save 1.4% (and 5.8% on profits)

• With increased development, every property in the city becomes more accessible and affordable

Suddenly, the urban advantages of Philadelphia – walkability, transit access, density of talent and customers, amenities, and culture – become unmitigated strengths rather than factors that must overcome tax disadvantages.

The Counterarguments

Now, the naysayers will have questions:

"Won't this hurt seniors on fixed incomes?"
We can easily create circuit-breakers and deferral programs for vulnerable populations, just as we do now with property taxes.

"Won't this cause gentrification?"
Actually, the opposite. By encouraging development citywide rather than in just a few hot neighborhoods, we distribute growth more evenly. And by lowering overall housing costs through increased supply, we make the city more affordable for everyone.

"Can the city legally do this?"
Pennsylvania allows split-rate taxation, where land is taxed at a higher rate than improvements. Moving in this direction is already within our power.

"Won't this hurt land-intensive businesses like car dealerships or self-storage?"
Yes, businesses that use valuable land inefficiently would face higher costs – which is exactly the point. Land in a dense city shouldn't be wasted on suburban-style, low-value uses. The market would appropriately price this inefficiency.

"Won't landlords just pass the LVT onto tenants?"
Quite the opposite! By definition, LVT is most efficient for a landlord when they can split it across multiple tenants—ie: rather than price their existing tenant out, they could make more money (without raising rent!!) by adding more units. Tax for the property remains the same, but their revenue goes up.

And, bonus—with more development of housing, inherently rent would actually go down across the city.

The Tax-Exempt Question: Universities, Hospitals, and Nonprofits in the Current Climate

Any serious discussion of LVT in Philadelphia must address a critical question: what about the substantial land owned by tax-exempt institutions?

The Scale of the Exemption

Tax-exempt properties account for approximately 17% of Philadelphia's total real estate value – about $29.6 billion worth of property. This translates to roughly $414 million in foregone property tax revenue annually. More than half of these exemptions belong to government properties, while the rest are owned by nonprofits like universities, hospitals, churches, and other charitable organizations.

The University of Pennsylvania alone owns at least $3.2 billion in property, making it one of the largest property owners in the city – and it pays no property taxes.

The Moment of Opportunity: Institutions Under Pressure

The timing for an LVT discussion is particularly interesting given the unprecedented financial pressure Philadelphia's major universities are facing. While it might seem counterintuitive to ask stressed institutions to pay more, their vulnerable position actually creates a unique window of opportunity for negotiation.

Major universities like Penn are facing severe federal funding cuts, with university leaders stating that these reductions could be "more severe than challenges faced during the 2008 recession and the COVID-19 pandemic." Penn has already been ordered to halt federally funded research totaling approximately $175 million across seven schools, making this a genuine financial crisis for Philadelphia's largest private employer. If other federal agencies adopt similar formulas as the NIH, the total loss to Penn could reach $315 million, severely impacting its research mission.

When institutions are struggling financially, they often become more willing to negotiate arrangements that provide predictability and stability – precisely what a well-structured PILOT or partial LVT contribution could offer as part of a broader tax restructuring.

Three Scenarios for LVT Implementation

When implementing LVT, we face three potential approaches to these institutions:

1. Full Exemption: Maintain current exemptions completely, leaving 17% of land value untaxed. Not great.

2. Negotiated Partial Payments: Following Boston's model, where nonprofits pay about 25% of what they would owe in property taxes to cover core services like fire, police, and road maintenance. Historically, Philadelphia had a similar program in the 1990s that sought 40% contributions. Not bad.

3. Full Inclusion: Eliminate exemptions entirely under the argument that LVT represents a fundamental restructuring of our tax system, not simply a continuation of property taxes. Not likely.

The Worst-Case Scenario Analysis

If we maintain all current exemptions (scenario #1), the math changes a good chunk. Instead of a 5.5% LVT rate on our entire $92 billion land value, we'd need to exclude about $15.6 billion in tax-exempt land.

This leaves us with approximately $76 billion in taxable land value. To generate the same $5 billion in revenue, the LVT rate would need to be closer to 6.55%.

Additionally, we must consider that under an LVT system that eliminates wage tax, these institutions would no longer contribute to city revenue through wage taxes withheld from their employees. Hospitals and universities are among the largest employers in Philadelphia, with hospitals representing the top wage tax contributor and universities ranking as the second-largest industry for wage tax revenue in recent years. Healthcare is the largest workforce sector in the city.

The city's wage and earnings tax is projected to generate about $2.51 billion in fiscal year 2024. If we estimate that universities and hospitals account for approximately 15% of this revenue (a conservative estimate given their status as top employers), that's about $375 million in wage tax revenue that would need to be made up through the LVT.

To compensate for this lost wage tax revenue in our worst-case scenario, we'd need to increase the LVT rate even further – potentially to around 7% on the taxable land base.

A Politically Feasible Approach

Given the current climate, here's a more realistic strategy for incorporating tax-exempt institutions into an LVT system:

1. Frame LVT as Part of the Solution: Position LVT not as yet another financial burden but as part of a comprehensive restructuring that could actually help these institutions. The elimination of wage taxes, for instance, would make Penn and other universities more attractive employers in a competitive market.

2. Phased Implementation: Begin with a very modest contribution rate (perhaps 10-15% of what would be owed under full LVT) with a gradual increase over 5-10 years. This gives institutions time to adjust their budgets while signaling a commitment to fairness.

3. Targeted Credits for Community Investments: Create a system where universities can offset a portion of their LVT contributions through qualifying investments in their surrounding neighborhoods – like Penn's support for the Penn Alexander School. This acknowledges the real community benefits these institutions provide while encouraging more targeted local investment.

4. Leverage Existing Internal Support: Internal support already exists. Faculty-led campaigns like "Penn for PILOTs" have gathered significant support, with more than 900 Penn faculty and staff signing a petition calling for the university to make payments to support Philadelphia's public schools. This internal pressure provides political cover for elected officials.

5. Build a Broad Coalition: Form a coalition including city government, faculty and staff from the universities themselves, business leaders who would benefit from wage tax elimination, and community groups in neighborhoods surrounding these institutions.

Six nonprofits in Philadelphia still participate in a PILOT program: Salus University, Albert Einstein Health Care Network, American College of Physicians, Commission on Graduates of Foreign Nursing School International, Cathedral Village, and Philadelphia County Dental Society. Building on this foundation while targeting the major players could yield significant new revenue without requiring state-level legislative changes.

With the right approach, we could reasonably expect contributions in the 25-40% range of what these institutions would pay under LVT, with the focus on the largest landholders like Penn. This would generate approximately $100-150 million annually – a significant contribution toward making our overall tax structure more sustainable and equitable.

The Political Challenge

Let's be honest: the biggest hurdle isn't economic or technical – it's political. The current system benefits powerful interests who will fight to maintain it:

• Center City land speculators and parking lot owners

• Suburban commuters who use city services but pay minimal city taxes

• Low-density, land-intensive businesses

• Tax-exempt institutions with valuable land holdings

• Politicians who enjoy the complexity of the current system and the power it gives them

But cities like Harrisburg and Allentown have already implemented partial LVT systems with positive results. The evidence is on our side.

The Path Forward

For Philadelphia to implement this business-friendly, resident-friendly tax system, we need:

1. A comprehensive land value assessment to establish the tax base

2. A coalition of forward-thinking business leaders and community advocates

3. Education to help residents and businesses see beyond the status quo

4. Political leadership willing to take on entrenched interests

The Bottom Line

Philadelphia doesn't have a tax rate problem – we have a tax structure problem. By shifting from taxing productive activities (working, building, selling) to taxing unproductive land hoarding, we align our tax system with our goals: a more developed, affordable, and fiscally sustainable city.

Combined with streamlined zoning and permitting (more by-right development, less councilmanic prerogative), Land Value Tax could transform Philadelphia's fiscal and physical landscape within a decade.

The math checks out. The theory is sound. The precedents exist. All that's missing is the political will to create a tax system that works for Philadelphians, not against them.

Let's make taxes suck less – by making land work for everyone.