A land value tax for schools and towns
Summary
Part 4 is the local leg: a 2.5 percent annual tax on the assessed value of land, not buildings, with a homestead exemption, collected by banks in escrow and split three quarters to school districts and one quarter to local government. It is enacted state by state as the tax on buildings falls, with a national grant covering local essentials until the land tax does.
Key findings
- Land is worth about 1.2 times GDP in the Federal Reserve's accounts; the model takes 8 percent off that base for the fall in land prices a new tax causes.
- A family in a $300,000 house on a $60,000 lot owes about $1,500 a year at the full rate before the homestead exemption, and little or nothing after it. The burden falls on commercial land, large holdings and land held empty.
- Local essentials (police, fire, roads, courts, parks, public health) cost about $560 billion in 2027; a national grant fills the gap and phases out in the mid-2040s.
The proposal
Land does not move, cannot be hidden, and gains value from what the community builds around it. Tax it at 2.5 percent of its value a year, not the buildings on it, with a homestead exemption so ordinary homeowners pay little. Banks collect it in escrow, as they collect property tax today, and send three quarters to the school district and a quarter to local government. Local money stays local: the land tax never enters the national fund.
Analysis
The tax is the same on an empty lot as on an apartment block, so holding land empty while the town grows around it stops paying, and building stops being punished.
How it works
2.5 percent a year on the assessed value of land, not buildings. Land is worth about 1.2 times GDP in the Federal Reserve's accounts1; when a land tax is announced, land prices fall by roughly the value of the tax, so the model takes 8 percent off the base. A homestead exemption (about $200 billion a year nationally) removes most of the tax on ordinary owner-occupied lots. Banks collect it in escrow with the mortgage and distribute it: three quarters to the school district, a quarter to local government. It is enacted state by state, phased in over five to ten years as the tax on buildings falls.
The local quarter does not cover local essentials on day one (police, fire, roads, courts, parks, public health: about $560 billion in 2027). The Direct Payment Fund fills the gap with a local essentials grant that shrinks as the land tax grows and as shared back offices make local government cheaper, and switches off in the mid-2040s.
Who pays
A family in a $300,000 house on a $60,000 lot pays about $1,500 a year at the full rate before the exemption, and little or nothing after it. The burden lands on commercial land, large holdings, and land held empty for speculation, which pays the same as the builder next door.
What could go wrong
Land assessment is hard and uneven today; a land tax depends on assessors who value land separately from buildings, and most places do not. Keeping the land tax out of the national fund costs the Social Security deposit about $2,600 per adult in the early years; the design accepts that cost, because a national payment that quietly defunds the local school would not survive its first budget season. And the remaining K-12 gap after the land tax is an open question.
Assumptions and limitations
- Land assessment is uneven today, and the tax depends on assessors who can separate land from buildings.
- The 8 percent capitalization adjustment is a simplification.
- State enactment and the five- to ten-year transition are described, not modeled in detail.
The model computes every figure from the assumptions shown; change them and the figures change. It is not a forecast.
Sources
- Board of Governors of the Federal Reserve System. Financial Accounts of the United States (Z.1), table B.101. Link. land worth about 1.2 times GDP. Not yet locked.
- U.S. Census Bureau. Annual Survey of State and Local Government Finances. Link. the local spending the land tax and the grant replace. Not yet locked.
- Lincoln Institute of Land Policy. Land value taxation: theory, evidence and practice. Link. capitalization of a land tax into land prices. Not yet locked.
Numbered references in the text point to this list.
How to cite
Places I Never Heard Of LLC (2026). A land value tax for schools and towns. Policy Lab working paper, version 1.0, November 4, 2026. https://policylab.placesineverheardof.com/uss-4-land-value-tax/