Levy will not put homeowners in the poor house

New property tax is nothing radical,

In a recent column, Gordon Gibson calls the new B.C. property tax on high-valued homes a “confiscatory wealth tax” and “arguably the most radical change in tax policy in North America in 100 years.” In doing so, Gibson risks giving the word “hyperbole” a bad name.

Let’s take a look at this “confiscatory” tax, which would apply only to the few homes valued at more than $3 million and beginning at a rate of two-tenths of one per cent on the excess value. So a $4-million home would be liable for all of $2,000 in additional tax. That figure is what Gibson regards as “a devastating hit on ordinary homeowners.”

Some readers might well ask, “Who are these homeowners that Gibson deems to be ‘ordinary?’” And with homes valued in the multimillions, what is the difficulty in paying a few thousand dollars more per year?

Gibson begins by describing B.C.’s provincial property tax as “the sneakily named ‘school tax.’” The tax has had that name for decades, across multiple administrations, and that is nothing new or nefarious. B.C.’s sales tax has similarly been named a “social-services tax” since its 1948 debut.

Both the provincial property and sales taxes flow into general revenues. Gibson states that with property taxes, “Everyone pays the same rate, notionally to pay for municipal services to property.” But he seems to confuse the municipal tax with the provincial property tax.

Gibson deems the introduction of a bit of progressivity into the property tax as unjustifiable, even though he concedes that the principle of progressivity is well-established in the income tax. So what is special about property tax that it should not also be given a modestly progressive bent?

He further warns, “Tax someone’s income this year and it can be replaced. Take someone’s savings each year, though, and bit by bit they are gone. Forget your inheritance, kids.”

Yet with its high threshold and rates far below long-run rates of housing appreciation, the new progressive part of property tax is unlikely to make more than a minor dent in anyone’s inheritance.

The new B.C. tax appears to be an outgrowth of my proposal for making the property tax progressive, made first in 2016 in a Vancouver Sun column and further elaborated in a C.D. Howe Institute memorandum.

However, while my suggested threshold was lower ( but extra for seniors), it had two further important features not embodied in the B.C. legislation.

First, all homeowners with value above the threshold could offset the new tax by their total income taxes paid in Canada.

Second, all homeowners subject to the tax could defer payment until their home was sold (an option in the regular property tax now available only to seniors).

By using an offset for income taxes paid, my version of the tax would have effectively targeted non-resident foreign investors, domestic speculators, criminals, satellite families and other high earners who manage to pay little Canadian income tax.

The few others affected by the tax could defer their liabilities and thus avoid cash-flow burdens.

While Gibson regards these modest tax-rate increases on high-valued homes in B.C. as radical for North America, he seems unaware of much harsher taxes on housing wealth right across our border. To begin, almost every larger U.S. city has property-tax rates ranging from double to 10 times the all-in rates for homes in Vancouver.

Americans are also subject to tax on the gains from the sale of their home exceeding US$250,000 (tax-free in Canada) and on large accumulations of wealth, including homes (federal and state estate and inheritance taxes; no equivalents in Canada).

Gibson then raises the alarm that departing from a flat rate for property tax should worry all homeowners that future policy changes could target those with modestly valued homes.

“Class warfare, here we come,” he warns — missing out on an exclamation mark.

Gibson closes his tirade with the kindly suggestion, “If … aiming for a redistribution of wealth … is your goal, surely there are better ways.”

But he leaves the reader hanging for exactly what those better ways might be.

Rhys Kesselman is an economist specializing in taxation policy and professor emeritus with Simon Fraser University’s School of Public Policy.