Wednesday, November 16, 2005

It's only your money …

… so don't give this post a second thought. From today's London Free Press:

Property assessment notices that have provoked controversy in Ontario will be in London mailboxes as early as today.

[…] While the notices contain a variety of information, the key measure is this: Did the value of your home go up more, less or about the same as the average London home?

If your assessment jump matched the city's average of 13.82 per cent, your tax rate likely will be whatever is set by council, which may be heading toward a tax hike of three per cent or less.

But if your assessment rises by more than the city average, your taxes will, too — the bigger the jump, the greater the tax hike.
With a history of voting in Liberal governments, it's no surprise that Canadians are so contemptuous of their own property, nor that they rarely question the arbitrariness of the assessment system that determines the disposal of their property at the municipal level. How can the value of property be calculated by bureaucrats and computers? The value of property cannot be accurately determined until it is sold — a concept that asserts the ownership of property as belonging to anyone other than the government, a notion that will never be idly defended by Municipal Property Assessment Corp. (MPAC) officials.

I've written about this before:
The concept of property tax is as dubious as that of income tax, negating the concept of private property and the right to dispose freely on one's efforts. Someone who has already paid off the mortgage on their home is at risk of losing the home if they fail to pay the property taxes on it. Paying property taxes is equivalent to paying rent to the government. If you do not pay your rent, you lose your house. Property taxes based on assessed value of property also serve as a deterrent to the improvement of property, except in those cases where exemptions are provided.

The property tax system provides a stable revenue stream for cities, but is that a good thing? In recessions, levels of government that depend upon income and sales taxes find that their revenues drop while property tax revenue for local government is stable. But is it fair to expect homeowners to pay the same amount in property tax when incomes are not similarly stable or increasing?
If you're inclined to do anything more than complain about your property taxes, check out the Freedom Party of Ontario's platform — including a proposal to eliminate property taxes:
  1. scrap Ontario’s taxation of property;
  2. convert Ontario’s PST into a broader-based value-added tax, and lower the PST rate as necessary to make the conversion revenue-neutral;
  3. give to each and every Ontario municipality the discretion to add a municipal premium to the PST within its respective geographic borders. The province will collect each municipality’s premium through already-existing provincial collection systems, and remit the revenues to the municipalities in which they were paid. To discourage abuse and ensure accountability, municipal and regional governments will be denied the power to undermine tax-rate competition between municipalities via legislative, contractual, or other methods.
Repeating myself again:
Sales taxes, if we must have taxes, are the only taxes that make allowance for the individual's ability to pay, because it is based on a percentage of goods consumed which directly correlates with ability to pay. And it does not penalize persons whose fortunes have taken a turn for the worse by risking the property that they have already earned. In this sense, property taxes are even more regressive than income taxes, and are no more meritous than income taxes to those who value individual liberty. Furthermore, sales taxes are much more transparent than property taxes to the many people who do not pay property tax directly but only indirectly through their rent.

If municipalities derived their revenue entirely from sales taxes, the more mobile capital of purchasing large goods other than real property would reward the efficient municipal governments. If Woodstock has a sales tax of 7% and London has a sales tax of 10%, I am going to do my purchasing of expensive goods in Woodstock. This would go a long way to reducing waste, inefficiency and corruption at the municipal level. It would alleviate the false sense of security of municipal revenue that councils have and force them to abandon inappropriate and aggrandizing capital projects and social programs. The argument that this would place the onus of municipal expenditures on individuals rather than businesses fails simply because business overhead costs such as property taxes are already passed on and paid for by consumers. Consumers who live in a community that runs efficiently would benefit from a lower municipal sales tax, and may also benefit from revenues from out-of-town shoppers from less efficient communities.

If cities derived their revenue strictly from sales taxes, the importance of the success of local business would also be much more apparent to residents. Consequences of municipal mismanagement and waste would also be apparent both in the harm it causes local businesses and the people who they employ and in the deterioration of the services that these sales tax revenues would pay for. And for those who claim that it is really business that controls municipal affairs, those businesses that currently lobby city staff and councillors would have even a more immediate interest in their bottom line, if they don't already, in maintaining efficiency and minimizing the consequences of special interests driving up the mill rates with their pet projects. Local citizens would also have a more active interest in making sure their councils manage municipal affairs responsibly and competitively. Competitive and efficient cities unburdened by overriding "shrill, knee-jerk, status-quo whining" special interest groups would be the result of such a change. Otherwise, those cities will ultimately perish from lack of revenue and the resulting drain of people living in those cities.

Municipal revenues have derived from residential and commercial property taxes for so long that their presence is quite taken for granted, and alternatives are neglected if not feared because of the profound change they would bring. But since these property tax revenues are unable to keep pace with the rising costs of social programs and wasteful bureacracy, city councils have been pleading for provincial and federal grants, never minding that the source of these grants is the same taxpayers who suffer rising property taxes, increasing the destructive politicking that is going on in this country.
In fact, I'd like to hear from any readers why we should not substitute sales taxes for other methods of taxation at any level of government. Check out the Freedom Party's proposal to scrap provincial income tax as well.


Brent Gilliard said...

I think I can support an extreme reduction of property taxes, though I'm aprehensive about abolishing that source of gov't income entirely. They are regressive and the method of determining property values is too arbitrary. Also, taxes generally act to discourage whatever they are applied to, and we don't really want to discourage property owning.

Having said that, there is a great deal of money to be collected in property taxes in high-demand areas of larger cities. Though London isn't at that stage right now, some day it might be feasable to collect relatively (compared to the rest of the city) high property taxes downtown.

I also take issue with your claim that sales taxes are "based on a percentage of goods consumed which directly correlates with ability to pay." People with low incomes spend a disproportionate amount compared to higher-income individuals/families who can afford to save.

So what is the solution? I don't know. I'm not an economist or even someone who is handy with numbers. But I'm pretty sure sales taxes are not.

MapMaster said...


You find me at a disadvantage when I try to argue the relative merits of one authoritarian measure over another — any form of involuntary taxation is not philosophically reconcilable with the principles of liberty — but I'll stand by my contention anyway. Your arguments are:

1. Similarly relativistic, based on an undefinable scale of perceived justice of outcomes. "People with low incomes spend a disproportionate amount compared to higher-income individuals/families who can afford to save." By this, you suggest that poorer people will pay a disproportionately higher amount of sales tax compared to income than richer people (despite agreeing that property taxes are regressive as well). In no way does this suggest that sales taxes are more unfair to poor people — they would still be paying the same rate as richer people on their purchases, and would still be paying less in absolute terms than the latter. This is only not fair if you suggest that it is not fair that some people can afford to purchase more than others, an idea I don't think you would willingly promote. Nor is your statement true in the long term. Yes, higher-income people do save more of their income — but whether invested or just socked away, that money and any profit or interest accrued on it will — and must — eventually be spent to be of any use to the savers, or their beneficiaries. Under a sales tax regime, those purchases will eventually be taxed. As such, goods consumed do correlate with ability to pay. The only wrinkle in that correlation is that higher-income people may spend a higher proportion of their income on services than poor people — but nevertheless the sellers of those services will at some point get around to spending that money on goods.

2. Based on the assumption that the ends justify the means. "[T]here is a great deal of money to be collected in property taxes in high-demand areas of larger cities"? How does that make property taxes alright? If the goal of taxation is to maximize government revenue, perhaps you're right — but the government does not need to concern itself with the regressiveness, unfairness or arbitrariness of any forms of taxation in that case, only the political feasibility of implementing them. Which is fine if we regard ourselves as servants of the state instead of the other way around.

Although if we're going to talk of ends justifying the means, I could argue that the cause of reducing government waste and mismanagement is served when people are reminded with every single purchase of the burden that municipal (and other levels of) government place on them, unlike income taxes that are deducted from income before people ever see it except for once a year, and property taxes that are paid only a few times a year or are similarly deducted as part of their mortgage payments. Income taxes and property taxes are treated as semi-annual burdens instead of the daily appropriation of their labour and property that they really are. The GST and PST are unpopular because people don't like to be reminded of this appropriation every single day — in turn, because they are powerless to prevent such appropriation and because, unlike the FP's suggestion, they are incurred in addition to those other forms of taxation.

I'm not an economist, and my handiness with numbers has nothing to do with the subject. I'm pretty sure that crunching numbers of playing with correlation curves have nothing to do with what is right.

Brent Gilliard said...

My vote is behind income taxes. They are (theoretically) the most easily adjusted, simply calculated tax. We can make them as 'progressive' or 'regressive', as high or low as we want.

Of course, there will always be problems with the tax system. Some people pay too much. Some people pay too little. But I'm doubtful that restricting municipalities to collecting only sales taxes would solve any problems - or it would create as many as it solves.

We seem to be hobbling along just fine as things are, and I'm not going to agitate for major changes.

But if we are talking about what should be in a perfect world, why not make taxes a voluntary donation?

MapMaster said...

My vote is behind income taxes. Oh, the trouble with democracy! I'll have to write a post sometime on what I think about income taxes!

If hobbling along is the standard by which we measure our governors, I suggest that we keep voting for the Liberals. At the municipal level, though, I don't think property owners would characterize annual increases in the mill rate of 5 to 6 per cent just hobbling along! And that doesn't even take into account increases in assessment.

You say that an exclusively consumption-based tax regime would not solve any problems or would create additional ones. The first contention I tried to address in my post. The second — well, I can't even imagine what those would be. Except for the problem that sales taxes are easier to avoid — but that's the government's problem! Speaking for myself as a consumer, it's an opportunity!

Brent Gilliard said...

Democracy can be a pain sometimes. It isn't the best system, but it isn't the worst either. But we have to live with it. In the long term it is the most stable modern form of government.

The same arguement can be made for the tax status quo. A system of collecting taxes from many sources is best able to function and change through a wide range of conditions. If the property market busts and all we have are property taxes, tax revenues will fall dramatically - even though people are still using the city infrastructure. If all we have are property taxes, the city will be hard hit when we go through a depressive cycle and consumer spending falls. If all we have are income taxes... well, I can't think of anything right now, but I suppose an arguement could be made about the incentive to work... I'm sure you'll think of something.

Again, I'm aprehensive about making a massive change to the structure of our tax system.

(I think you overestimate the wrath of the voter at the municipal level. If these huge increases in property taxes don't get people to vote, I can't imagine sales taxes will send them to the polls.)

Brent Gilliard said...

That second doomsday taxes scenario should read "sales taxes" not "property taxes".

My bad.

Ian Scott said...

"But if we are talking about what should be in a perfect world, why not make taxes a voluntary donation?"

I don't have any problem with that.

MapMaster said...

"In the long term [democracy] is the most stable modern form of government." Compared to what? Have all others been tried? Is stability the best variable to measure in the relative scale of preferential outcomes? To you? To me? To the majority that by definition gains power over others from democracy? Just asking — I relish my little opportunity to kick the bums out myself, but it's an absurd and ephemeral pleasure. As an argument, though, it suffers from being no other than an arbitrarily defined and measured factor — assigned at least as much by emotion than reason — in a relative scale of perceived desireable outcomes. It is entirely subjective, in other words. But fair enough, I have my apprehensions about some policies more than others.

Your concern seems largely to be that governments have a stable revenue stream despite economic conditions. Assuming that economic conditions are not affected by governments' efforts to produce revenue streams in the first place, is it fair that homeowners and income tax payers should subsidize a stable revenue stream for governments when theirs are not? (This question is rhetorical in a sense — I could rephrase it without the "when theirs are not.") But let's take it as non-rhetorical: individuals must cut back on their expenses when times are hard — their infrastructure must await repairs, so to speak — is it not reasonable that the governments that are supposed to represent their interests accommodate comparable measures?

By the way, you are quite correct that I overestimate the wrath of voters. I blog to incite their anaemic wrath.

Brent Gilliard said...

"anaemic wrath"
oxymoron of the year. nice.

I'd say more, but 22 minutes is on. maybe tomorrow.