This article was published in the fall of 2021. Eventually I had to take it down because it had begun to attract a half-dozen spam responses per day. I’m re-posting it here with a new title just restore the blog record. This articles belongs in the early tax series.
The third form of taxation is taxation on wealth, which in Canada mostly means property tax. There are many countries however, in which the tax is a wealth tax, and is assessed against an evaluated net personal worth, almost always above some threshold level.
The existing Canadian wealth tax is Property Tax. I hate Property Tax. I hate the notion of a generalized wealth tax even more, but for the moment, let’s think about Property Tax. You can buy a property, invest in it, beautify it, sweat over it, and when you do, you are improving the value of the whole community around you. But because you’ve helped make your area desirable, the government can reassess your property and force you to pay more property tax. In the extreme case, you could lose the property because you can no longer afford the property taxes. It seems all wrong to me.
Why do we have property taxes at all? Well, I think property taxes are mostly assessed by municipalities, and they are the mechanism by which we raise the monies to provide services to residents of the municipality. And all residents need to help pay for those services. And who are the residents? Ahhh, there’s the rub. Some residents are homeowners, and they are readily identified. But some residents are renters, and how do we keep track of a fairly fluid portion of the town’s population like renters? I guess the answer is, we don’t. We tax the property instead, and it becomes the owner’s job to collect the tax revenue from the renter.
But why is property tax based on the assessment of current market value? Is there some relationship between the services provided by the municipality and the market value of my home? No, the cost of snow clearing in front of my home is probably a function of how much street frontage I have, not a function of how nice a house I put on that lot. Similarly, the cost of water supply and sewage removal is linked to the size of my lot, but not the attributes of the home sitting on that lot. The cost of things like policing, garbage removal and library services are unaffected by the value of our property.
It seems to me that it would be a lot simpler and more defendable if we simply charged a flat fee for every living unit. We could have a fee structure that recognizes residential density – tax on high rise apartment units would be less per unit than the tax on town home developments, which would in turn be less than single property homes. And for those ultra-rich sections of town where the wealthy are spread out on gigantic building lots, we could add in a street frontage assessment. So, in the end, property taxes would be determined by the zoning (desirability) and street frontage (property size). And now I can make an improvement to my property without having to be concerned that the building permit process will trigger a reassessment of my property.
By the way, if we adopted this system, there’s an entire block of civil service that’s no longer needed, and the cost of government goes down. No need for municipal tax assessment. Little or no need for (in Ontario) the Ontario Municipal Board appeal process, because there’s no real judgement involved. It’s just a straightforward application of a rules-based process.
What about commercial and industrial zoned properties? They need to help pay for municipal services. I confess I don’t have much understanding of how the tax system works for commercial and industrial properties. I think that the size of the water supply to the property could be a factor. The size of the electrical supply is a factor. Street frontage matters. Build in an assessment for the number of parking spaces they require and therefore how much street they need and how much demand are they imposing on traffic management? I really don’t have this formula worked out. But I believe that there is a formula, that would be based on the attributes of the property in a way that links to what the municipality has to provide.
OK, enough about property tax. What about more generalized wealth tax?
Canada is flirting with the notion of applying a broader wealth tax system. It was a plank in the federal NDP policy platform. Some months ago, Prime Minister Trudeau spoke of imposing a tax on “extreme wealth inequality” to help fund the Covid 19 spending deficits, although the Liberal party subsequently voted against the measure.
It has been tried in a number of countries. In France, (I’m quoting from a Huffington Post article) the governments “charged a wealth tax of between 1.5 per cent and 1.8 per cent on large fortunes for decades, before abandoning it in 2017. Research suggested the tax caused at least 10,000 wealthy people to move out of the country, mainly to Belgium.
It ended up raising so little revenue that when it was cancelled, it was largely seen as a symbolic move.”
We have laws that protect our property from individuals who want what we have. If someone likes my vehicle, he’s not allowed to simply take it. We call it theft if he does.
We teach our kids to have respect for other people’s property. If it’s not right for us, as individuals, to covet our neighbour’s goods, and to act on that coveting, why is it appropriate for us as a community to covet our neighbour’s wealth and to demand that they should give it over to us in small annual increments? Does the “death by a thousand cuts” approach of the tax man make it any more excusable that we, the voting majority, demand what you have simply because you’ve been able to accrue wealth and we haven’t?
Consider two people who each have substantial incomes. Simon pays his income tax, consumes modestly and saves for his retirement. He invests substantially in his property and the market value appreciates significantly over the years. He plans an early retirement, with lots of travel and perhaps a second home in a nice warm country like Costa Rica. He feels good because he will be able to pass along a significant portion of his estate to his family and ease their lot in the future.
Billy-Bob works with Simon and earns the same substantial income. He lives the high life. He travels a lot, spending a lot of money outside Canada. He gambles half of his money away in Las Vegas and Monte Carlo. He still has the first house he ever bought, and it is an eyesore in his neighbourhood, because he’s never spent a Goddamn cent in maintain the property.
At age 55, when Simon is getting ready for his retirement, Billy-Bob looks around and realizes that isn’t very well prepared for retirement. And he looks over the fence at Simon’s nice house and nice vehicle and he hears Simon talking about his upcoming retirement and he thinks “I want what he has. Why should he get to retire to Costa Rica?”
If the government agrees with Billy-Bob and changes the rules on Simon, what is the message? Is the message that Billy-Bob had it right all along? That Simon was an idiot for living a prudent and responsible life-style? If we’re going to tax wealth, why the Hell should people save?
Well, the simple answer to that question is that most wealth tax systems have a threshold, and most people will never reach the threshold, so there’s no practical impediment to most people accumulating some wealth. But for the moral implications of a wealth tax we need to think about the system as if there was no threshold, because there’s nothing to stop future governments from nibbling away at our savings by playing with the threshold level. I don’t like it when the rules of the game can be changed at any point by the will of the majority. Majority rule can become majority tyranny, and we should be wary of embracing a morally weak position simply because the majority demands it.
All of the foregoing, as well as some of my musings on income tax distribution sound like a spirited defence of the ultra-rich, so let me be clear. I have no particular love for the ultra-rich. Yes, I do think it’s wrong of them to amass huge fortunes and give no thought to philanthropy. I admire the works of Bill Gates, and Bono, who have displayed a great deal of awareness of the great disparity that their wealth has created. I really wish more of the truly wealthy would get on that train, and I think there’s something wrong with any billionaire who cannot think in terms of how he or she should put their wealth to work to better conditions in their own country or in the less fortunate areas of the world. So I think they should be doing good things with their wealth, and I think they’re morally defective if the thought of good works never crosses their minds. But that doesn’t mean that I think we can demand that they do so.
Democracy is a great way of determining what we all want to do together. That means that it’s a tool for unity. But when the rights of the voting majority are used to divide the country into two groups (have and have nots) and the majority group consistently imposes their will on the other group, that’s not much of a tool for unity, is it? It feels a bit like an abuse of the powers of democracy to demand something of another that we’re not prepared to do ourselves.
And while I’m on this horse, let me tell you how I feel about the NDP. I love them. They seem like really nice people who want to do really great things. I never want them to achieve power, but I think they’re really useful in that they frequently identify aims and goals that we could aspire to. We have health care in Canada because of Tommy Douglas and the Social Credit party, a forerunner of the NDP. We will undoubtedly achieve pharmacare at some point – an NDP idea. We’ll probably extend medicare to include dental care – again an NDP kind of idea.
My problem with the NDP is that they want to employ the tyranny of the majority. I cringe every time I hear Mr. Singh demonizing corporations like they were evil entities which ought to be trampled in an uprising of the common man. I despise him and his party when they say that they will provide a set of new benefits for the “lower class” at no cost to themselves. “Don’t worry – we’ll take it from the rich.” If you’re in the 33rd percentile or lower for incomes, it must be very tempting to vote for someone who says they’ll give you something for free. I guess that the truth is that indeed, the top 33rd percentile, perhaps the top 10th percentile is likely to bear the brunt of those costs. But I think that the NDP should be a little less obnoxious about justifying that outcome by saying “they’re not doing their fair share” when the top ten percent guys are already paying ten times as much.
Conclusions:
- We can and should modify the property tax system to make it much less subjective, much more stable, with a formula that will lead consistent tax results no matter what you do to add onto the property value.
- We should strongly resist the adoption of a more generalized wealth tax because there’s a moral weakness in the whole notion.
- Don’t vote NDP until they pitch their platform to the country as a whole because we need to do it together, and not because we can make the lord of the manor pay.