Tuesday, July 4, 2006

Abolish the property tax

Andrew Coyne's Dominion Day column promotes an idea close to my heart — the abolition of property taxation:

Over the years, Ontario has adopted or considered nearly every conceivable method of assessing property taxes. We’ve had market value assessment, unit value assessment, and actual value assessment, among others. Each one has tried to address the inequities of the one before, only to throw up even worse injustices of its own. At some point the thought may occur to someone: This is not accidental.

Property tax reform inevitably fails because the property tax is, at bottom, unreformable. It isn’t the method of assessing property values that is the problem: it’s the whole concept of property as a base of taxation that’s flawed.
The thought, in fact, has occurred to plenty of people already — I hope to have made a comprehensive case against property taxation and the benefits of replacing it with a municipal sales tax here and here. And if you're inclined to do anything more than complain about your property taxes, check out the Freedom Party of Ontario's platform — including specific proposals 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.


bonnie abzug said...

Excellent post, Mapmaster. It just goes to show that if one keeps up a conversation long enough, any two people can find some common ground.

While I would frame the proposition somewhat differently - "reforming municipal taxation" vs. "abolishing the property tax" - I think we can both agree that the exercise needs to be revenue-neutral and that, at the end of the day, municipalities will end up with a taxation system that is more responsive to growth in the economy.

My own preference would be for the federal and provincial governments to share "income tax points" based on a fair and equitable identification of the core responsibilities of each level of government. This system too would need to be revenue-neutral and would result in the abolition of the property tax.

James Bow said...

I fully agree. The property tax system in Canada is regressive, makes no allowance for income, and directly encourages urban sprawl. It is far past time that it be abolished and replaced by something else. Although a sales tax might not be effective. You'd still need something to get the businesses that locate in cities to pay for the services they use. I'm thinking more along the lines of a percentage of the income tax.

Pietr said...

Instead of being encouraged and discouraged, taking baby steps in one approved direction while the beasts of our burden tread on our receding heels, suppose we all just sit down and take a break?
Say for a couple of decades?

MapMaster said...

Bonnie, I feel much as Captain Renaud must have felt right before the closing credits. Your idea of an income tax points system is certainly better than the existing one, and would have the advantage of forcing municipal councils to operate within more definable limits, but would have the disadvantage, I fear, of creating a new political and bureaucratic monster trying to figure out what "fair and equitable" core responsibilities are for each city. For example, should points be awarded for having to service a large municipal debt? Such a system might end up increasing the destructive politicking that already occurs between levels of government in this country. Something for me to think about, anyway…

James, good point about property taxes encouraging urban sprawl… not that I'm against urban sprawl itself, per se, as you may remember, but I am opposed to artificial incentives and disincentives. Right now I'm out in mainland BC where there is a powerful legal disincentive for urban sprawl, in fact an outright legislative ban almost, but that has the perverse consequence of artificially raising property prices and rents, thereby disproportionately punishing people who don't own property and similarly and excessively rewarding those who do. Abandon all these economic distortions (and others unmentioned here) and one would certainly find a more modest sprawl without punitive pricing.

Actually, I agree that businesses should pay for their services, but a handy method for that already exists — user-pay fees. Which, I might add, like every other overhead cost that businesses incur, will be passed on to consumers. So, all right then, but what's the point in that particular concern? Here I outline some of the relative benefits of municipal sales tax:

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.

I add "relative" because, given the choice, I'm with Sorehead.

MapMaster said...

By the way, Bonnie, I'm not sure what you mean by saying that "the exercise needs to be revenue-neutral" or that I would probably agree with that. Actually, I think that were a municipal sales tax to be implemented it would be politically wise for a municipality to make it at least revenue-neutral or perhaps better, depending on surrounding sales tax competition. But if it were entirely based on income tax points, a revenue-neutral exercise would actually reward those municipalities that had been to that point profligate, conceding that excessive revenues are as neutral as moderate revenues. But later you go on to say that tax points would be based on a "fair and equitable identification of the core responsibilities…" I suppose that you must mean revenue-neutral from the standpoint of the provincial and/or federal government(s). In that case, I would agree.

But on the whole I do prefer sales taxes…

bonnie abzug said...

Well, actually, what I meant is that the tax load that we all carry right now - all of the various taxes that we pay - ought to be more than sufficient to fund all government spending. And in fact we know that the federal government collects more taxes than it spends and that municipalities spend more than they have. Arguments about profligacy and corruption aside, a fair sharing of income tax points amongst the three levels of government based on the services that each is expected to provide would give municipalities a source of revenue that mirrors growth or decline in the economy on a much quicker basis than does property tax (if this tax does so at all). This type of system would not reward excessive spenders, as you fear, because the tax point sharing formula would be fixed. This would represent the base funding that a municipality has to operate. Other operating funds would come from the standard array of sources currently available to municipalities and here each city would need to innovate to remain competitive: development charges being a good example.

Now, of course, if the object of the exercise is to "punish" municipalities, this more equitable system might not appeal to you. If "corruption" and "profligacy" and "illegitimacy" are the key components of your view of the nature of municipal government, then by all means a portion of the sales tax as the prime funding mechanism of local government is ideal. It is certainly regressive enough to disproportionately shift the burden of funding local services down the economic ladder. It would speak very clearly to the notion that the social compact forged over the last fifty years or so in virtually all developed countries is flawed; that the system which has allowed the more fortunate of us to accumulate the most widely shared personal wealth in history is merely an historical coincidence; that each person ought to contribute to the general well-being based not on his or her capacity but on consumption; indeed, that the very idea of a social imperative to care for the less fortunate is obscene.

Mitch said...

I think that another first step would be to ammend the municipal act that states that all tax increases must be approved by the citizenry by ballot.

In Michigan, property values are frozen, so that local governments must take millage increases to the voters. Plus if a city wants to implement an income tax, that too, must go to the voters.

Opps - that would imply the electorate is capable of self government, something the forces that be would never allow

rhebner said...

1. privatize garbage pickup
2. set residential, commercial, industrial flat rates for police,fire,education, snow removal and municipal recreation, and send each taxpayer an itemized bill. That way all services cost the same by category and have nothing to do with what neighbourhood you live in or how much your house is 'worth'.