Raising property taxes is neither progressive, nor regressive

A willingness to raise property taxes cannot be held out as a litmus test for progressivity; the progressive left used to spend much of its time arguing pretty much the opposite.

Thestar.com
Jan. 4, 2017
By Edward Keenan

On the subject of Toronto property tax rates, my own position has long been clear: I wrote last spring that the city should raise them five per cent in addition to the rate of inflation, and I still think that’s reasonable.

But it has been interesting to see, during the mayoralty of John Tory, how a willingness to raise property taxes is now being held out as a litmus test for progressivity.

This is an angle of argument ramping up once again as the Toronto budget committee gets down to its detailed work next week as the mayor and budget chief promise not to consider large property tax hikes.

A rash of critics of the mayor scoff loudly at his hundreds of millions of dollars in proposed new revenue - through road tolls; hotel taxes; ending vacancy rebates for commercial landlords; land transfer tax changes, and, even, a 0.5-per-cent-per-year property tax levy dedicated to infrastructure capital - because his refusal to significantly raise residential property taxes marks him as a regressive reactionary.

This is weird.

I’m old enough to remember when Toronto’s self-proclaimed progressive left spent much of its time arguing pretty much the opposite.

Let us recall, for a moment, the faraway land of Toronto in 2007 and consider the budget talk of the time.

“By adopting these measures, city council would avoid significant property tax hikes, and, as we all know, property tax is regressive and has a significant impact on seniors,” then-mayor David Miller said in September 2007, launching a campaign to sell Toronto residents on the idea of a “fair tax plan for Toronto” that included “revenue tools,” including a vehicle registration tax and a land transfer tax.

“By their very nature, some taxes are regressive, hitting the poor harder than the middle class and the rich. Property taxes are one such tax. ... ” the Toronto Star editorial board argued in 2007, picking up its headline cry of “unfair burden on poor” from a Canadian Centre for Policy Alternatives report.

That same year, the Star’s David Olive lamented that cities in Canada are “almost wholly reliant for revenue on the property tax, one of the most regressive forms of taxation ... ” Around the same time, I spent a lot of words, now lost to history, arguing the same thing, and not just because, as Royson James argued here in 2006, the property tax does not “differentiate between a poor widow and a rich magnate, each owning a million-dollar home.”

I was also hammering away on the reality that tenants in rental apartments pay property taxes - through the rent they pay to their landlords - at a much higher rate than homeowners do.

Given the general income and wealth disparity between property owners and renters, a system that charges a higher rate to the latter is almost a textbook illustration of being regressive. And, despite more than a decade of introducing increases at a lower level on commercial and multi-residential properties, it remains the system today: rental apartment units are charged a city property tax rate about three times as high as the single-family home residential rate.

I assume that, combined with its deep unpopularity among voters, is why Olivia Chow, in running against Tory for mayor, promised to keep property tax increases “in line with inflation,” similar to the promise made by Tory (while Doug Ford promised to freeze them).

I assume it is part of the reason why virtually every major candidate for mayor since 2006, including David Miller and George Smitherman, has promised to freeze property taxes or keep increases at or below the rate of inflation.

In truth, just one tax in Canada is truly progressive by definition: the income tax. And, in my opinion, progressiveness needs to be measured for the system as a whole — taxes collected and benefits paid out - not just for the collection side.

In any event, property taxes are, in fact, regressive, especially in the way they are now administered. Here and there, experts and unions have proposed “progressive property taxes” that would, for example, exempt renters and use income-based rebates, but such proposals have yet to catch on.

Property taxes on homeowners are an effective tax on wealth, real estate wealth in particular.

Wealth has no direct connection to income, and especially in a steeply inflationary real estate market such as we’ve seen in Toronto in recent decades, property wealth may have little connection with easy ability to pay.

Accessing the wealth tied up in land value, may, for many homeowners, involve selling or borrowing against the value of your house.

And a tax on landlords’ property is almost, by definition, ultimately paid by tenants, which divorces the tax from the ability to pay it in such cases, which represent about 50 per cent of Toronto households.

These are arguments that have often been made by progressive opponents of property tax increases, and they mirror ones made recently to the Toronto Star editorial board by Mayor Tory.

Notwithstanding all this, I think a property tax increase remains a good, relatively fair tool in Toronto’s circumstances, for reasons it isn’t necessary for me to get into again here.

My support for it, however, doesn’t make it progressive.

And my support for property tax increases doesn’t make opposition to them somehow a mark of right-wing ruthlessness.

What opposition to raising property taxes does represent, sadly, is the long-standing majority opinion of our city council and the consensus opinion of those who’ve run for mayor in the past decade.

It’s not a move in a regressive direction.

It is just, for better or for worse, political reality.