How to Protect Wetlands and How Not to do it: Lessons from Tax Policy

Tax reform is a hot topic. Both Republicans and Democrats say they’re for broadening the tax base, closing loopholes, and lowering tax rates. Bruce Bartlett’s new book is getting a lot of well-deserved attention. So while we’re at it, why not reform implicit taxes, too?

Regulations to protect wetlands, to the extent that they reduce the economic value of affected property, are a prime example of an implicit tax. If they go so far as to reduce the economic value of the property to zero, they constitute a regulatory taking. Under the Fifth Amendment, the government must then pay compensation to the landowner. However, courts have typically found that regulations that serve a public purpose but do not reduce the economic value of a property to zero are not a taking and do not require compensation.
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