Detroit Mayor Mike Duggan has introduced a proposal he says will cut taxes for nearly all city homeowners — while keeping property tax revenues basically the same.
The idea is known as a land value or split-rate tax. That’s because it taxes land and buildings at different rates.
In this case, Duggan — speaking Wednesday at the Mackinac Policy Conference — proposed a 30% tax cut on structures, and a 300% increase on land.
Duggan said that will save the average Detroit homeowner hundreds or thousands of dollars a year. And it will shift the burden to speculators who own vacant land, encouraging them to develop it. The change in policy would also hit the owners of vacant commercial properties, scrap yards, and parking lots.
Duggan said if implemented, he would want the new tax structure to have a three-year phase-in. He said such a policy will shift power dynamics in the city, and promote equity.
“Think about that and wealth-building in the city of Detroit, what that adds up to,” Duggan said. “Because most people, the generational wealth is in their homes. And we can triple the taxes on the people causing their blight.”
Duggan said the proposal would need approval from state lawmakers, and also from Detroit voters. “We're going to need Lansing to pass this this fall. And we're very pleased that Speaker Joe Tate has agreed to lead the charge on this. And once you get it through Lansing, you have to go to the voters,” he said, adding that he hopes to have the matter before city voters in early 2024.
The benefits of the tax change are backed up by a 2022 study done by the Lincoln Institute of Land Policy. It found that “taxing land at a higher rate than buildings would help to revive the local economy and reduce tax bills for nearly every homeowner” in Detroit, a city with “the lowest property values of any large U.S. city and some of the highest property tax rates.”
“By adopting a split-rate property tax, Detroit can make its tax system both more efficient and more equitable,” said John Anderson, an economist at the University of Nebraska, Lincoln, and lead author of the study. “Efficiency is enhanced by removing the tax-related barriers to capital improvements and development. Equity is enhanced by a reduction in taxes for the vast majority of residential homeowners.”
Splitting the property tax provides long-time Detroiters with the tax relief that new businesses and residents already receive,” added co-author Nick Allen, former manager of strategy and policy for the Detroit Economic Growth Corporation and now a doctoral candidate at the Massachusetts Institute of Technology.
“Our study shows that it is an effective, immediate way to permanently reduce burdens on overtaxed households and restore property wealth," Allen said. "It’s not enough, but it is a required step towards racially equitable recovery.”
A coalition of Detroit development and community groups issued a statement supporting Duggan’s proposal soon after he made it on Wednesday.
Anika Goss, the CEO of Detroit Future City, said the current property tax system has made homeownership in Detroit a burden for far too long, driving many Detroiters out of their homes and into suburbs where property taxes are more affordable.
“If we’re serious about equitable growth in Detroit, we have to fix our broken tax system and help ensure Detroit’s property taxes are on par with those in neighboring suburbs,” Goss said. “The Land Value Tax Plan is an important step in our efforts to encourage homeownership in Detroit and responsible development throughout the city.”
