Eminent Domain is not Worth its SALT

October 16, 2014

The Mercatus Center at George Mason University released a report this week showing that eminent domain is not worth its SALT, that is, doesn’t actually produce meaningful state and local tax revenue. Not only did the group find a lack of growth, but eminent domain actually has a slight negative relationship with revenue growth. They state:

When we expand further on the work of Turnbull and Salvino by examining subsequent revenue growth, we fail to find evidence that supports the hypothesis that eminent domain is positively associated with future revenue growth. To the contrary, using our more precise measure of eminent domain activity, we find limited evidence of a negative relationship between eminent domain and revenue growth.

Eminent domain, argued under the takings clause of the U.S. Constitution, undermines property rights, which could cause a decrease in capital investment. Without the guarantee against taking, people may be cautious about investing and developing real estate, decreasing overall revenues. As the center reports,

The institute of well-defined, secure private property rights is the foundation of voluntary exchange. Property rights provide incentives for individuals to maintain property, seek opportunities for mutually beneficial trade, and be innovative and entrepreneurial.

In all, state and local tax revenue is not an adequate reason for eminent domain. One example is the 2005 U.S. Supreme Court ruling of Kelo v. City of New London, which determined the use of eminent domain to transfer properties between private parties was allowed because the new development would increase much needed state and local revenue. As we have previously written, developers ended up changing their minds about the property, which now sits empty. Despite the lure of higher tax revenues, the gamble against secure private property rights is one that rarely pays off.

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