In 1963, the Legislature in Hawaii passed the Pittsburgh Tax Plan which changed property tax rates from a single rate levied on property values to a split-rate system in which land and improvements are taxed at different rates. As a result of the law, land in Honolulu was taxed at $15 per $1000 of assessed value and improvements were taxed at substantially less. a) Suppose there are four major political interests in Hawaii: hotel, agriculture, small business and residents. Which of these (if any) is most likely to have opposed the Pittsburgh Tax Plan? Why? (Be careful to answer the question asked. Do not answer the question: ‘which is most likely to oppose taxation in general?’) (5 points) b) The Halekulani is a low-rise, low-density luxury hotel in Waikiki. The SheratonWaikiki is a high-rise, high-density luxury hotel in Waikiki. Which hotel had the higher tax bill under the Pittsburgh law? Which hotel had the higher claim on public services? Do you think these two facts created support for or opposition to the Pittsburgh law? (10 points) c) For a given level of tax revenue, which tax policy is relatively more efficient- the single-rate policy or the split-rate policy? Explain using pictures of supply and demand curves. (10 points)
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