Most people – myself included – are surprised the first time they go to downtown Pittsburgh and realize how nice it is.
In part, the reason is that Pittsburgh has taxed real estate differently than most other locales in the country.
Pittsburgh, from 1913 to 2001, used a graded tax system – a variation on the single tax.
More specifically, Pittsburgh taxed land area and land improvements separately. Taxes on the land itself were based primarily on the size of the lot. Taxes on improvements were based on the value of the improvements made on top of the land. Either one could be taxed relatively more, but the policy was to tax the improvement less (over 80% less in practice).
The incentive then is to improve each lot as much as is reasonably possible. The result is a more pleasant and active city. Pittsburgh is far from perfect, but there is a noticeable difference when you compare it to other rust belt cities.
But, conformity won, and Pittsburgh abandoned this system in 2001; the city still retains a surcharge for lots though. Twenty other communities in Pennsylvania, including Harrisburg, still use a similar system. Plassmann and Tideman provided empirical evidence that the graded tax system led to more construction.
Hat tip to Bob Shea.
