DEBATE ESCALATES OVER WEALTH TAX ON HOUSING
Some of the world's mightiest billionaires, including Bill Gates, Warren Buffett and George Soros, say their immense wealth should be taxed more than it is.
The billionaires' call for more taxation of capital gains on property and estate transfers echoes the thinking of famed Norwegian American economist Thorstein Veblen, who advocated luxury taxation by arguing rich people's “conspicuous consumption” absorbs society's resources in unproductive ways.
In that general vein, UBC faculty members Tom Davidoff, Paul Boniface Akaabre and Craig Jones produced a paper showing many owners of expensive Greater Vancouver houses pay trivial amounts of income tax.
Owners of homes with a median value of $3.7 million pay income taxes of just $15,800 — which is exceedingly low in North America.
The authors suggest a minimum income tax on owners of the most pricey homes in Canada, most of which, at least in Greater Vancouver, “appear to be purchased with wealth derived from sources other than earnings taxed in Canada.”
The authors, however, are receiving pushback from some real estate specialists.
They reject the UBC team's proposal, which considers how, if one per cent cent of a property's assessed value was paid in income taxes, it would mean working-age owners of a $4-million home would have to pay a minimum $40,000 a year to the Canada Revenue Agency.
In a strongly worded statement, two prominent figures in the housing debate, SFU real estate professor Andrey Pavlov and tax specialist Paul Sullivan, condemned a minimum income tax on owners of high-end homes.
“Governments, universities and some lobby groups seem focused on confiscating people's home equity through additional taxation,” Pavlov and Sullivan said in a joint news release.
“Perhaps all this tax pain was intended to literally tax people out of their homes,” said Sullivan, a principal with Ryan LLC who leads the Business Tax Alliance, a partnership with B.C. Business Improvement Associations.
The news release from Sullivan and Pavlov, titled “B.C. homes owned mostly by people working for government,” poked at public servants, such as university faculty. Sullivan and Pavlov said taxes on property and other things have swelled salaries in the government sector — “enabling a number of public servants to own not one, but multiple homes and investment properties.”
Pavlov and Sullivan have maintained the best way to combat unaffordability, which is among the worst in the world in Metro Vancouver and Greater Toronto, is to make it cheaper to build housing. Generally, they oppose moves to reduce demand.
Davidoff, of UBC's Sauder School of Business, says he respects the intelligence of Pavlov and Sullivan and welcomes a debate over whether rich working-age homeowners “should or should not contribute their fair share of taxes.”
Davidoff responded to Sullivan and Pavlov's key points:
“Vancouver single-family property owners already pay the highest property taxes in Canada,” Pavlov said. He said property and other taxes are the major reason renters can't afford to buy, noting Canada's property taxes are 25th highest of the 37 countries of the OECD, a club of well-off nations.
Davidoff agreed that high income tax and sales taxes can make it harder for renters to save. But he countered: “It's absurd to argue that shifting taxes away from income and sales and towards expensive homes owned by low income-taxpayers would harm renters.”
MANY HOMES BOUGHT WITH EARNINGS FROM ABROAD
Sullivan and Pavlov provided no evidence to refute the UBC team's key finding that many owners of luxury homes pay a trivial amount of income tax. And Davidoff made a point of how their study centred on homeowners of working age — not retirees, who would be exempted from a surtax.
Indeed, the news release of Sullivan and Pavlov linked to a report on Statistics Canada Housing Data that emphasized that mansion-filled regions like West Vancouver and the University Endowment Lands have the most extreme ratio of housing prices to declared annual income in Canada (about 20-to-one).
“The largest share of homeowners in B.C. and Nova Scotia work in the public administration sector,” say Pavlov and Sullivan, citing Statistics Canada. But Davidoff said such a finding doesn't mean many public servants in those provinces own expensive homes or that, in the unlikely event they did, it would be a bad idea for them to pay a minimum income tax.
Who own the priciest homes? While Davidoff acknowledges some expensive homes in Greater Vancouver and Toronto are owned by people who bought long ago when prices were low, he emphasized the study's finding that a large portion of the most expensive housing in Metro Vancouver “appears to be purchased with wealth derived from sources other than earnings taxed in Canada.”
Sullivan and Pavlov's news release actually links to a Statistics Canada study that affirms the same thing.
It reported, “Properties which had a combination of resident and non-resident owners generally had higher value-to-income ratio than properties owned solely by residents.”
That is StatCan's jargonistic way of referring to so-called satellite families, in which the owners of Canadian homes make more than half their earnings outside the country. It is a group that the B.C. government has targeted through the speculation and vacancy tax.
The debate will continue.