Transportation  drives the American economy. It determines the costs of trade, the ease of accessing services, and the interconnectedness of people and places. But transportation itself is also shaped by a wide variety of conditions, most notably the use of space. To improve transportation across America, the use of space must be set up to best take advantage of whatever form of transport is the most convenient, efficient, and necessary.

However, due to the way local governments tax property, the nation has large amounts of low-density space which, in many cases, leads to an inefficient utilization of the transportation network. A tax on the value of land would result in better use of space, promote functional agglomeration, and can ensure that transportation will be a strong path towards better economic vitality, social equity, and wellbeing.

Most local taxes in the United States are property taxes, which apply an equal rate to the total value of a property’s land and improvements upon that land.  Property taxes are subpar for two reasons. First, they penalize improvements to property. For example, if a homeowner renovates a kitchen, the value of the property goes up, along with the tax penalty. Second, property taxes (relative to land taxes) subsidize unused land by shifting the entire tax base onto improvements. In this way, property taxes subsidize and incentivize lower densities.

Alternatively, land value taxes levy no taxes on improvements and shift the entire tax burden onto the underlying land. Under a land value tax scheme, improvements only capitalize on the value of land. This model encourages right-sized development by incentivizing developers to match investment and therefore improvements to the set tax burden.

Land use matters to transportation because certain forms of transportation can only exist with a minimum surrounding density. The Puget Sound Regional Council found a light rail station requires a minimum density of 9,600 to 12,800 residents per mile in the surrounding half mile. Density is a foundational component of effective transportation because transportation options are not sensible without the population to back them up.

Agglomeration derived from a land tax also provides community benefits. Jenny Schuetz from the Brookings Institution writes, “[a]ssessing taxes on the increased land value not only incentivizes more development more quickly on expensive land, but also allows local communities to capture some of the returns on additional land value”. Without the development incentives from land tax, valuable but vacant land fails to provide returns for a community. Incentivizing capitalization through a land tax ensures this land responds to the demands of the surrounding population.

In many ways, one of our country’s greatest needs in transport has nothing to do with improving the system itself but, rather, in reforming ineffective local tax policies. The United States needs to reimagine space on a grand scale. The best policy to do that is a land value tax.

The views expressed above are those of the author and do not necessarily reflect the views of the Eno Center for Transportation.  The views expressed herein are those of the author and are not presented as those of the Congressional Research Service or the Library of Congress.