Wednesday, March 5, 2014

Toronto Needs Progressive Property Taxation

In November, the TTC board decided to raise fares for 2014 by approximately $60/year for people who buy metropasses every month.  Many have already noted that this amount is the same as the $60 VRT that Mayor Ford and Council repealed early in this term.  Quite plausibly, this is a regressive tax transfer from a form of taxation that falls more heavily on wealthier residents (e.g. those with cars) to one that falls more heavily on poorer residents (those reliant on the TTC).   As the TTC is already one of the least subsidized and most expensive transit systems around, it is reasonable to ask when and how a major subsidy increase for the TTC from Toronto's general revenue could ever be funded? 

Toronto is Canada's 6th largest government (by both population and government expenditure) and has no formal means of levying progressive taxation on its better off residents.  The City of Toronto Act gives Toronto a few extra taxation powers that other Ontario municipalities don't have, and yet none of these can be explicitly progressive.  In particular, the act explicitly prohibits property taxes (Toronto's top source of revenue) from being anything but flat-rate. Why should this be so?

Progressive Property Taxes

Numerous countries and municipalities which employ property taxes have already implemented mechanisms to explicitly make them progressive in nature, meaning roughly that the most expensive properties are taxes at higher rates than inexpensive properties.

How Does It Work?

Misunderstanding of progressive taxation is quite common. In the realm of income tax, it is not difficult to find people who believe that if they get a raise that bumps their total income into a new higher tax bracket, they will end up worse off after taxes because they think their whole income gets taxed at the higher rate.  This is not how escalating bracket rates work. Only the portion of your income above the threshold is charged at the higher rate.

Let's look at Ireland's nationally set, but locally paid progressive property tax for a simple example.   Ireland charges home owners 0.18% on the value of property under 1M Euro, and 0.25% on any value above 1M Euro.  Let's imagine two homes, one worth 600,000 and the other 1.2M (twice as much).  The first will pay 600,000 x 0.18% = 1080 euros.  Simple. The second requires an extra step:

1,000,000 x 0.18% = 1800
+ plus
  200,000 x 0.25% = 500
1800 + 500 = 2300 euros.

If the second house paid 0.25% on the whole value of the house, that would be 3000 euros.  Instead, the house worth twice as much pays 2.12 times as much property tax.  That .12 is the progressive part.  No one need hold off renovating their 950,000 euro house because it will cross the magic value threshold and dramatically increase their tax burden.

Why Do It?

There is actually a good argument out there that property taxes are inherently mildly progressive (one obvious reason: wealthier people are more likely to own property and pay it), so why not make it explicitly progressive?  Particularly in an era of vastly growing inequality, some areas have done very well, but large swaths have been left trailing behind.  As the city cannot levy income taxes, a progressive property tax would be a great way to begin to address the inequality.  From "The Three Cities" (p1), this:

Toronto income change by area

Is why the politics of property tax increases are as contentious as they are. Many of the people in the brown sections are hurting.  Even if they're renters, some amount of property tax increases flow through to them, and for those who own in lower and low-middle class neighbourhoods, property tax increases hit them hard.  Many quite legitimately feel they cannot afford higher taxes, and are not just grousing, it actually materially affects their lifestyle.  It even forces some out of their homes.  Like Toronto's other mostly flat taxation powers, the problem is that flat taxes max out at the realistic ability to pay of the least affluent people subject to them.  Yet many others above that level have the means to pay more, but this can only be achieved with progressive rates.  In the past this awkward reality was "squared" by contributions from the Province, who can and does have explicitly progressive taxes, but they're proving less willing to pay their share over time.  Rather than assume trends like this below (chart refers to the TTC) will reverse themselves, Toronto should act to address its needs and not wait for the fairy godmother to re-appear.

Singapore provides an example of another advantage here, by introducing a progressive property tax structure that cut taxes on lower valued properties while increasing taxes on the high value ones. Not only can we charge more from those who most benefit from the city, but we can give those more likely to find each day a struggle a break.

A final advantage worth mentioning is that it is administratively very simple to do, since the city already has a property tax collection, assessment and enforcement system in place.  Unlike setting up fun and exciting new forms of taxation like road tolls or sales taxes, which need things like infrastructure and whole new departments of staff to run, this would only incrementally increase the work effort of the existing property tax staff.  Toronto already charges different rates for different types of property (including a regressive higher rate charged on multi-unit apartment buildings that mostly falls on low-income renters once passed along by the landlords), this is logistically very easy to do.

Problem: It's Illegal

The province would need to amend the City of Toronto Act to allow this.  They should, particularly if Toronto City Council asks them to. Toronto has an elected government, why should it not have the same capacity the Province does to decide that wealthier citizens should bear more tax burden?  Virtually every other tax in Canada is at least somewhat progressive, even the GST has rebates for low-income Canadians.  Why should municipalities not have this power?  Premier Wynne is currently searching for "revenue tools" to fund transit. Keep searching, but give Toronto increased taxation powers as a mature order of government (Ford notwithstanding) - something the province has already acknowledged in the 2006 Toronto act, which granted the city extraordinary powers that other Ontario municipalities do not have.  This is just a concession to reality: Toronto is Canada's sixth biggest government, if it cannot "handle" these powers, we'd better amend the Constitution to take these powers away from the five smallest Provinces too. 

Toronto is going to need sigificant new revenue to address its urgent and still growing needs:
  • Massive transit improvements from new lines to major maintenance deficits on the existing system
  • Upgrading our proven insufficient flood managment capacity
  • The large unfunded repair bill to maintain our social housing stock
  • Whatever we do with the Gardiner won't be cheap
  • Huge areas of economic need left behind as inequality swells will need social services & revitalization to ward off possible descent into slums
Up until now the City has basically been waiting for higher orders of government to fund these things.  A progressive property tax need not preclude that, but it would allow the city much greater flexibility to move on these items on its own, and ask the Province or Federal government to contribute to an in-progress plan which the City can lead, rather than spend months or years careening back and forth between the levels trying to work out a financing deal for any major project.  Toronto needs progressive property taxes.

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  1. This would not be a big change. Toronto has the right to do this very thing for commercial and industrial properties and does do it for shopping centres and office buildings. Toronto could ask for the right to do it for residential properties.

    One problem is that, especially in Toronto, the value of your house often doesn't correspond to your ability to pay. There are some people with low income, especially retired people, who live in what are now very expensive houses. There are some wealthy young people who live in relatively inexpensive condos.

  2. Daniel:

    The Province is currently (October, 2015) in the process of reviewing the City of Toronto Act (COTA). Unfortunately. the draft amendments to COTA that City Council is currently requesting from the Province do not include graduated tax rates for the residential property class.

    The City is having a Public Meeting on COTA and these requested amendments this week (October 28, 2015) starting at 7:00pm at City Hall.

    This is an opportunity to make proposals on graduated residential property tax rates. The Province is also taking comments at

    Another avenue would be to contact your City Councillor so that s/he may support such an amendment in the future.


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