Recently, I have given considerable thought to Guam's property tax system. There are many elements to be considered about it, but I want to elucidate a few facts from the relevant economic theory. When the Guam Legislature and Governor Skinner first enacted the property tax in 1951, the tax rate on improvements was 1/2 that on land. Successive changes in rates have left the tax rate on improvements at 4 times that on land. This change in policy is in the opposite direction of that suggested by the standard economic theory.
The standard analysis for the property tax is that the tax on land is essentially efficient because the amount of property and its value is basically fixed, whereas the tax on improvements discourages investment, so it is less efficient. So, it would generally be more efficient to shift toward a land tax and away from taxing improvements. It is interesting to me that this had not gone unnoticed by everyone on Guam. In 1964, Mr. Paul Souder wrote an article in Pacific Profile advocating the adoption of a pure land tax, in place of the real property tax then in place (at the time, the tax rates were equal). This idea has been around for a long time and was most famously advocated by Henry George in the 19th Century.
I have my doubts about whether a pure land tax is preferable to taxing both land and improvements at some rate. One objection which comes to my mind is that it may interfere with the incentives for what would be otherwise mutually beneficial trades of land for other resources and thereby distort the development of the market value of land.
Nevertheless, I also see the potential incentive effects of shifting the tax burden toward land and away from improvements in a generally positive light, since it would encourage investment in the form of buildings and other capital which would be potentially taxable as improvements.
Much of my questions about the potential impact of changing the property tax deal with the effects on market values over time and how the distribution of resources would be affected. I hope that these can be clarified in good detail and that an appropriate tax reform could be adopted to increase the fairness and efficiency of Guam's tax system.