Promoting Good Design and New Investments in the City: Site-Value Taxation
As an alternative to the current property tax system, James Howard Kunstler (author of  The Geography of Nowhere) commends a rational alternative, site-value taxation which levies a tax on real estate commensurate with the site's potential value, regardless of what buildings may occupy the site. This form of property taxation recognizes "socially created value" -- the huge public investments in streets, sewers, utilities and so forth, that make the private real estate  holdings more valuable. Site-value taxation encourages productive new  investments, such as buildings for middle-class housing and denser urban  development. This, in turn, makes urban spaces more lively and interesting -- places where people want to live and businesses invest. By taxing land, and not buildings, developers have greater incentive to design durable, gracious  buildings and can more easily eschew the slipshod standards of so much  contemporary construction.

(One caveat to site-value taxation is the need to designate lands that should
remain urban and lands that should remain agricultural. Without such designations, it is possible that developers would find it attractive to convert  some farmlands to other uses.)

Site-value taxation could be a powerful force to reverse the forces of sprawl, by increasing supplies of affordable, attractive middle-class urban housing and thereby rejuvenating the city in other ways. More than a dozen U.S. cities, as well as Australia and New Zealand, have taxation regimes that reduce or eliminate taxation on buildings and shift it to land. In two cities that adopted this tax regime, Harrisburg and Pittsburgh, construction subsequently boomed and rental housing supplies increased.¹

In Pittsburgh, the land tax is five to six times the tax on buildings and improvements.  The practical experience in this city, despite the devastating decline of the steel industry, has been a significant increase in the amount of development and construction occurring in its downtown -- more than is occurring in its suburbs.  In fact, following the adoption of the new tax rate, development within these communities has exceeded that of many similar neighboring cities. ²

Promoting City Livability: First Time Homebuyer Tax Credit
After a thirty year decline in population, the District of Columbia recently passed the $5,000 Homebuyer Credit Act to help replenish the city's population and, in turn, its taxpayer base.  Unlike some other tax incentives, it applies to buyers in any D.C. neighborhood, not just economically distressed areas. 

The act offers a $5,000 tax credit incentive to first-time District home buyers. The credit applies to purchases completed from Aug. 5, 1997, until Dec. 31, 2000 and  is for one-time use only. A single taxpayer with modified adjusted gross income of less than $70,000 is eligible for the entire $5,000 tax credit. The credit phases out between $70,000 and $90,000 in modified adjusted gross income. Joint filers are eligible for the entire credit with modified adjusted gross income of less than $110,000; the benefit phases out between $110,000 and $130,000.  Unmarried taxpayers who purchase a residence jointly are allowed to split the credit.

Locating Business Near Infrastructure: Maryland's Job Creation Tax Credit
Some states have begun  to use tax laws as a disincentive to sprawl.  In Maryland, the state changed its tax code so that businesses that locate or expand in designated "growth areas" are eligible for a new job creation income tax credit. The Job Creation Tax Credit Act promotes job creation by providing income tax credits to business owners who create at least 25 jobs in Priority Funding Areas. The jobs must be full-time, permanent, and pay at least 150 percent  of the minimum wage. This tax policy is also coupled with cash incentives for people who choose to buy homes near the paces where they work.

Promoting Historic Preservation: Tax Incentives for Property Owners
Thirty seven states offer tax incentives to encourage property owners to maintain and renovate old and historic buildings.  While each incentive program differs, most fall into one of two categories: 1) state enabling laws permitting municipalities to offer local property tax abatement; or 2) state income tax credits. For example, Oregon  provides for a property tax abatement for residential and commercial properties.  There is a 15-year freeze on pre-rehab value of historic properties listed on the National Register.³

Promoting Land Recycling: Brownfield Tax Incentives
The hurdles to redeveloping brownfields as a land recycling strategy are formidable, but they can be overcome if the proper economic incentives are in place.  Public and private investment, channeled by a combination of market forces and intelligent public policy, will ultimately move land recycling forward.⁴

Various tax benefits can help offset the cost of cleanup.  The Brownfields Tax Incentive, a provision included in the Taxpayer Relief Act of 1997, Pub. L 105-34, seeks to spur the cleanup and redevelopment of brownfields in distressed urban and rural areas. Click here for highlights of the tax incentive and EPA's Brownfields Initiative. 

Promoting Farmland Protection: Tax Incentives 
A number of tax incentives exist to protect farmland and farm production. 
Tax incentives are widely used to maintain the economic viability of farming. All states have at least one program designed to reduce the amount of money farmers are required to pay in local real property taxes. 

According to The American Farmland Trusts' Farmland Protection Toolbox, the most important type of agricultural tax program is known as differential assessment. Every state except Michigan has a differential assessment program that allows local officials to assess farmland at its agricultural use value, rather than its fair market value, which is generally higher.

Three states -- Michigan, New York and Wisconsin -- allow farmers to claim state income tax credits to offset their local property tax bills. These programs are called "circuit breakers" because they relieve farmers of real property taxes that exceed a certain percentage of their income. Iowa offers a credit against school taxes on agricultural land. While circuit breaker programs are not widespread, they are receiving increasing attention from state governments looking for ways to relieve farmers' tax burden. (For complete information, click to The American Farmland Trust)

On the West Coast, California's Land Conservation Act of 1965 allows farmland owners and counties to voluntarily enter into10-year, renewable contracts restricting landowners development options in exchange for lowered property taxes. The state compensates counties for a portion of the lost property taxes.

For other financial incentives to preserve farmland and open space see Farmland and Open Space Preservation.

¹ James Howard Kunstler, Home from Nowhere: Remaking Our Everyday World  for the Twenty-First Century (New York: Simon & Schuster, 1996), pp. 204-6
2 Timothy Beatley and Kristy Manning, The Ecology of Place: Planning for Environment, Economy, and Community (Washington, D.C.: Island Press, 1997), p.75
³ Constance Beaumont, Smart States, Better Communities: How State Governments Can Help Their Citizens Preserve Their Communities (Washington, D.C.: National Trust for Historic Preservation, 1996), p.  91
⁴ California Center for Land Recycling, Land Recycling and the Creation of Sustainable Communities, Policy Paper 1, p. 24