Part 11 How the structure of the tax works
BASIC RULE: The TAX RATE for the class is the amount of the tax to be collected from the class (the class share or part of the LEVY) Divided by th total taxable value of all the properties in the class.
There are a variety of effects produced by this critical determinant of the property tax. Each class is confined to collecting all the tax that class will pay from among its members. The city set the class shares of the LEVY. the operating funds it will need for the current year. The market values that that start the procedure are not set or influenced by the City or the class members (although there is an appeal from the assessments of the the Assessment Authority). The city does not set the LEVY but does decide what is the total amount of money that will be needed for the current year's operating costs, and the shares each class will pay as a class. The LEVY is not tied to any individual or class member. But since the tax is to be collected from a class there is a large difference between the share a class must pay and the absolute amounts the different members of the class must pay, based, in turn, on the property tax values. It is at this point that a number very different from the class shares enters and then dominates the picture. Since there are about 12,341 business properties and 156,387 residential properties that must affect the amount that will be paid by each member.If we know the City has set the class shares at, say, 60% for business and 40% for residential, how will we decide what each owner is to pay? This
is why, as was recited in the KPMG report, the share of the classes in the LEVY and the amount based on the tax re derived from the formula above is quite different.
In 2004 the shares were 43% residential and 54% business; while the tax rate, derived from the formula, was $3.06 per $1000 of taxable value for residential and $16.75 for business. It is the tax rate figures that the business advocates cite when presenting their standard complaints. When they say the rate should be 2:1 or 3:1 and it is ion fact 5:1, it is the working of the size of the population of the class and the total amount of money to be paid by that class, leadilng to a simple division for the sum to be paid by each member, that they are complaining about. The main reason for this is quite simply that there are about 12,000 businesses and 157,000 residences and we have very, very big numbers at one end of the range of values for business properties.
On the other side residents can complain about regressive features of this approach that treats the very poor and marginal in the same way in business while the very rich in either business or residential are receiveing tax favors. It is as the classical French author Rabelais, wrote, that "...the law in its Majesty prohibits the Rich and the Poor from Sleeping under Bridges." It is even handed alright, but it is not fair by any reasonable description of the rules from making a non regressive tax.
But this disproportion does not make valid any claim of business that some business may be struggling to earn an income, and therefore should be assisted. What might appear unfair in the proportions of that tax rate contrasted to the tax share is immediately affected by the overt riding importance of tax deductibility to the great benefit of business with not such benefit to residential.Yet the benefit to both could exist and does so kn the United States with no apparent damage to business interests in that country where it is said that the business of the United States is business.
This can be see most clearly by looking at the contrasting case of residential owners who devotes some part of their household to a business use. Very substantial benefit is obtained from tax deductibility. Such a residential owner can deduct, proportionate to the use of the property, property tax, maintenance, mortgage interest, running expenses, and even depreciation from the income so earned as, say rent from University students in Point Grey.The residential owner however, who does not conduct a business from his house is required to pay his full tax just as the business is, but he cannot deduct it when doing his Federal Provincial Taxes. There is no basis whatever for either one of them to make an argument that he should not have to pay on the basis of market value because he is having difficulty making an income. This is because the property tax is a tax on wealth not on income. The fact is that in the case of the residential property, as in the case of business property, there is the difficulty, in the set up of property taxation, of a small quantity of very large numbers at one end of the distribution and a very large quantity of small numbers for most of the rest. There cannot be any possible justification for increasing what is already a severely regressive taxation system by further subsidies for big business or for small business where the tax is avoided. So the argument that some businesses are not doing well is not valid any more than any subsidy claim would be, which is really what the claim is about.
All the theoretical and economic arguments for reducing the business share of the tax based upon economic jargon such as foregoing opportunities for expansion, loss of job creation, and so forth, all have no application at all where no case is made that the existing distribution in Vancouver is very much different from the distribution of other large cities in Western Canada, or where there is no evidence whatsoever that the existing Vancouver tax has had any substantial effect upon location.
It is also true that there is nothing in the Assessment Act, the Vancouver Charter, or the history of the Property Tax that suggests in any way that the ratio or share of the tax to be paid by any class is supposed to bear any particular relation to the costs of operating a Municipality. There is no objective reason why the class shares should be in any particular shares. The legislative procedure is described in a 1989 Vancouver City Tax Review:
"The Charter authorizes the general purpose taxation of all non exempt real property in the City. As soon as the estimates for the year (budget) have been adopted by Council, the City is obliged to pass a rating bylaw. This bylaw imposes a rate levy on each parcel of property shown as taxable on the assessment roll prepared pursuant to the assessment act. Each class of property has a separate rate. The rate of levy multiplied by the total of the net taxable value shown on the assessment roll must raise by way of taxes a sum sufficient to meet the City's budget requirements. Te Variable tax rate system which came in to effect in 1983 obliges the City to impose a rate for each property class. The Order in Council presently specifies nine classes and the City imposes rate on seven of those nine classes."
[City of Vancouver, Report of Municipal Taxation Review Commission, March 1989, Page 22]
We note that there is nothing in this procedure that suggests any particular distribution and nothing in the practice of the different Municipalities in BC that suggests any rule for each class, and we see tax rates all the way from 1:1 up to more than 7:1 and in some of the minor classes (other than business and residential) the spread may be even greater. All the claims, or sneaky hints, of the businesspropagandists that it is somehow undfair that business pay more than a ratio of 1:1, or even that much, are claims supported only by thin air.
The point so often made that is is unfairness which is done or indulged in because businesses do not vote fails to recognize that even if it did that would be about 12,000 businesses against about 157,000 residential voters (where it is not one vote per dollar of property value but one vote per ratepayer. Business fears such votes and seeks by any means to avoid them. There was a time when money did directly vote, or when one but money could effectively vote, a couple of centuries ago (English "rotten boroughs"). Though business, big business, does control a lot indirectly, that former scenario is not likely to reappear any time soon. But more importantly , since businesses, as such , does not vote though their owners must pay the property
tax, it is clear that a basic feature of the Constitutional set up of the property tax , is that the views of those who operate business, are not relevant except that there is a right to contest the reasonableness of an assessment of the property value. That matches perfectly with the history of taxation. Indeed, to the extent business does dominate the affairs of the City and City Council we are viewing the development of a trend that is found again and again in history, right back to ancient times: the ability of the wealthy to gradually escape all taxation. In early times this trend would reach a point, over usually 30 to 40 years, that it was necessary to simply wipe out debts, or interest claims on them, and start again, so to speak. Otherwise the wealthy would evade any public obligations and the whole system would collapse.
[Hudson, Mesopotamia and Classical Antiquity Tax History, Page10]
In Canada, even the so called progressive income tax has stalled while the steady widening of the distribution of income and wealth continues to an even greater concen tration with very big numbers at one end. In Canada the average family income (before transfers) in the period 1989-95 as a share of 100% rose for the top fifth or quintile of the population from 42 to 43.9 (inflation adjusted) which was a sum greater than the total of all three of the first three quintiles added together.Only the level of government transfers softens that trend, though it cannot stop it. Them as has, gets.
[Research Project: Canada Watch: Income Distribution in Canada in the 1990al; October 98 Vol 6 No.32; page 2-p3]
It is the individual owners of property who are to decide the policies of the city and the rule is, one resident, one vote, whether with property or not, and regardless of the number of properties owned. And, effectively, that vote is to be used to decide on how much of the LEVY will be sought from business, since the residential share is merely consequential to that decision. That has been established for a very long time and current businesses are not in a position to try and get around it by complaining about high taxes and they are able to fully avoid this one anyhow.
Nor are they priced out of any price level in Vancouver or elsewhere since since the same clustering of ratios are found right across Canada. The most common remedy for municipalities is to take a much larger share from business than from residents , that is, the residents in Council are pricing business access to their City on the basis of what the traffic will bear. There is nothing wrong with that. If a City can be considered as a price discriminating monopoly as Vancouver has been, then that is the economic behavior that would be expected. On has only to look at the magazins and other media to see how business advertises its Vancouver connection.
The limit to the policy adopted by the City in this matter is simply the fact that if the tax is too high (despite the ability to shift it to the shoulders or others, in fact, to avoid it altogether) then business will leave town. If the City voters do not like that result, should it ever occur, it is they, again, and not business, that will change the policy of th City. The City is the people, and that is how it should be in history, economics and the law of the Municipality.
There is therefore no basis at all for any claim that the buiness "share" of the property tax should be any particular figure. In fact, it is in the interest of the rate payers that the business share of the tax should be as high as possible, shifting the payment to the large proportion goods and people that are transient to Vancouver, and these are in fact the basic reasons that Vancouver is the west coast semi monopoly city. If some argue that this is to shift the payment of the tax to those who are passing through or live elsewhere, there will be a perfectly similar tax weherever it is that these other locations are in Canada. And who will argue the reverse tat people who use the facilities of Vancouver to pass through should not have to pay for them? There will be similar features graded to the offerings of other cities and anyone from Vancouver who passes through such places, or visits for a time will be paying the Municipal tax regime there. And it will not be very different in in nature from Vancouver though we may look without result at quite a few to find a big modern container port, a big international airport, a rail, and a
road center and so on.
We may note in passing that another regressive feature of the City tax situation is the decision of the Çity to move into recovering more and more of its needs by user fees. If all must pay a similar charge for garbage removal, then this is a "tax" that falls most heavily on those who have the smallest disposable income ,and that would be,to start with, the 62% of the residential ratepayers whose properties are valued at less that $500,000. The organization of garbage removal and disposal in a large city is not just a question of a certain number of trucks and personnel or even a quota per household. It requires a large organization, complex systems and future planning. This is most suitable to public planning of public resource, not user pay, with the largest users escaping to their own arrangements and then complaining against development of public arrangements which need to be developed, such as re thinking the entire sewage and garbage removal functions in the light of environmental compulsion. Switching various services to a sort of imitation ":user pay" is not a bona fide accountng for cummunity services. It is just a way around the property tax, assisting business to escape payment and assisting the well off to deepened the regressive features of the tax. If the city goes to user pay not in order to recover the costs of discrete services not all persons use, like licenses for specific activity but in order to raise a revenue then that is not really user pay at all, and this just confuses planning.
Wednesday, December 26, 2007
Saturday, October 6, 2007
PROPERTY TAX IN VANCOUVER 10
Part 10 WHO CONSUMES THE PUBLIC SERVICES OF THE CITY
Another argument put forward often relying upon the 1995 study done by accountants in Vancouver is the claim that businesses consume less public services of the city than the homeowners do. The KPMG Study is quoted on the point that business tax payers pay 60% of the taxes but consume less than 30% of local services.
[KPMG Report ; Study of Consumption of Tax Supported City Services, Page 7]
The difficulty is that the procedure adopted by the accountants in the Vancouver study amounted to treating the property taxes as as something like a sales tax. They would examine the records of a department, or conduct a count of some type of use like attending a place or answering the phone, to see who had purchased or 'used' a particular service and they work out an overall figure for that. For more general usage they would take a figure derived from counting the hours spent in a particular department to produce a sort of standard overhead percentage of the department labor time devoted to this or that activity and whether the first beneficiary was business or residential. So they developed estimates by counts of proxies. They did not consider the ultimate beneficiary. The difficulties with this approach, a consumption approach to the use of city resources or services, are many, but the most important one is that it is simply not an appropriate way to cost out the reason why a person or business is located in the city nor do their taxes match their use of City services. People do not pay taxes on the basis of a specific amount of services they use, excepting those services that have been shifted to a user pay basis. And it is impractical to work out an acceptable way to measure who ultimately "consumes" city cervices in most cases. This is a view that was adopted by the City Manager and the Council in deciding not to use this "consumption" approach. At one point, even the Vancouver Board of Trade agreed with this conclusion and said as much in one of their publications.
[Vancouver Board of Trade; Letter to Mayor Campbell; April 16,2003; Page 3]
In the case of a business, the city offers as concentration of people providing employees and customers, concentrated travel and freight lines in and out, and in the case of Vancouver, also a port, a railroad terminal, and an international airport. It offers such a variety of people with their skills and capacities in a concentrated area that business will have confidence to come in and expect to be able to get any number of employees who can report to work daily and live nearby; as it can expect to find any number of customers for products reachable within an hour delivery time or available for further delivery by established transport.
A business could locate out in the country if they wanted to avoid property tax in Vancouver, and one only needs to imagine what would happen to big stores, service businesses, large employers attempting to do such a thing to see what a great number of services that business will rely upon. They will not be correctly measured or counted, if one just asks how many times the department store phoned the police or the firemen. The sophistication of City services will be found to march in tandem with the state of growth in population. Consultant , KPMG, did rely however upon a consumption approach, for instance, measuring use of the police department on the basis of things like checking how many times homeowners phoned the police or fire (and to what fire hall in the city) for assistance compared to the various call from business. The only result of a consumption oriented study like that, would be to greatly underestimate the significance of the city reality to the needs of business. The best test of all is location, and if there does not appear to be a tendency of business to drift out of town as a trend, apparently because of raises in the property taxes, then it can be assumed that either it is estimated the City services are well worth the property tax or else the property tax is such a small item that it does not figure importantly in location costs. It may even be that for some business to leave would be a welcome trend, where the City has a plan to re-develop an area with residents moving into newly renovated buildings creating new business opportunities and a city that is not getting hollowed out. Such a plan is obvious in the area now called Yaletown, an area not known for better quality housing since the original construction of the Georgia Street Viaduct, but now a higher rent area with redevelopment from wharehouses to apartments.
The fact is that a number of scholars have made studies of the business tax and their conclusions appear to be that it is not a substantial item in location.
"Notwithstanding these potential problems, survey results have not shown much
support for the importance of taxes, especially property taxes, as to determine
location decisions."
[Business Property Taxation; Kitchen and Slack; Discussion papers series School of Policy Studies, Queens University, Ontario 1993, Page 41]
Again, on Page 43 of this study the comment is made that in the USA where many cities have far greater ability to raise revenue by various forms of taxation (sales tax and income tax as well as property tax), there has therefore been greater interest in location causes. Property tax has not been found to have a significant impact on business location decisions.
In 2005, in the Policy Report of City Finance to the Council at April 28,2005 , it was pointed out that the question of who consumes many city services is not a straightforward one , particularly when direct and indirect benefits are taken into account. In short, a set of user fees for everything is simply not practical as a method of determining use of city services between the two chief classes of rate payers. We can comment that this would be too much like an oldster standing on his front porch and arguing with the neighbor that he should not have to pay some part of the property tax because he no longer uses the road in front of his house, having sold his car when he retired, and therefore, the cost of the city crew working on the street should in some way be deducted as to his share. The end of that development, just as would be the case with extended use of user fees, would not be a community, but chaos, and no real City government at all but a jungle of private walled compounds and hundreds of security firms generating a tyranny for all but a very small number. And a much higher social cost of living, for those who could afford to pay it and live in such a savage place.
The finance director's comments on this matter in the April 28th report were not supportive of the use of consumption based taxes:
"Determining true consumption of city services is not really possible.
Determining who "consumes" many of the services the city provides is not a
straightforward undertaking, particularly when direct and indirect benefits are
taken into account. Who is "consuming" the city's roads, police and fire
services, planning services, library services, and so on? The answers to these
questions may to a large extent be dependent the approach taken to and the
assumptions underlying the analysis." As the finance Director adds, the
Vancouver City Council chose not to pursue the KPMG study.
[Report of the Finance Director to the Committee of CS&B, April 28,2005, Page 9]
This argument is constantly made by business advocate such as the CFIB, that "business, especially small ones, actually use fewer services than homeowners", and reliance is often supported by reference to the KPMG study. We submit this is not supported by the City of Vancouver as shown by the above history. Neither doe it make any sense since it turns the whole idea of a community upside down and this is not a useful way of developing a community.
[CFIB submissions on Property Tax Inequities in Saskatchewan, Page 7]
Another argument made appears to rely on the idea that there is some obligation of municipality to subsidize business. This argument states that most businesses are very small, having fewer than five employees, and operate on very tight profit margins. Thus, they cannot afford to pay business tax. Passing over the obvious response that economic hardship is very true of individuals as well, particularly those who are on fixed incomes, like old age pensioners, and the equally obvious fact that these businesses do not pay the business tax they pass it on, we must submit as stated earlier that this is not relevant to property tax. This is simply a case of what is called special pleading. In fact property tax is very regressive, and if we assumed that it really was a burden to small business, which does not appear to be true in terms of Federal Income taxation then a reasonable remedy would be to introduce a rebate based on 15% of the property tax as required by the existing tax rate, payable from the lowest valued property, with the rebate to be reduced to 0, in regular sequence, at the median property value. This would work but we doubt that it would be a well received idea at the Vancouver Board of Trade which really speaks for large business interests, despite its show of solicitous concern for small business.
Before that would be done, however it would be necessary to first of all reduce the tax in a similar way for all the ratepayers for whom the regressive feature was most onerous and who have no chance at all to make deductions as the business class can do. For this it would be necessary to establish a rebate at 30% of the tax payable based on the tax rate for the lowest value property, declining to 0 at the median property value. Residential owners, the ratepayers of the city, must always come before merchants. This would not involve the homeowner grant, which is a separate expression of the policy we will find clear across Canada, encouraging citizens to have a stake in the economic system by assisting them toward ownership of their own home and so fostering social stability.
Introducing such remedial measures for home owners and small business will reduce regressive aspects of the property tax as it is now, without drawing the City into quick fix measures that only delay tax increases and unfairly load even more burdens onto the paying ratepayers,like term averaging or caps.
Of course there may be some millionaires in $200,000 business properties and some wealthy old people in homes rated at less than $500,000 but in both cases concern here would be to focus attention on income rather than wealth and the property tax has been the preeminent form of wealth tax in our society at the local level. There is no lack of taxation as regards other measures including income tax, imports, sales and excise taxes on specific items like liquor and tobacco.
This argument about who uses City services invites attention to the regressive features of the property tax. Whether one is considering the size of business or the size of residential units, there is a vast difference in the case of Vancouver Between a property owner like the Bentall block where five large office buildings are under common ownership, or a small business tax payer who may own a modest commercial property in South Fraser. The difference is between a few hundred thousand and many hundreds of millions.
The same mill or tax rate applies to both properties within business class, which presently is $15.52 for every $1000 of market value. But that rate is significantly different from the residential rate ($2.52 for each $1000 of market value) because of the total mass of property in each class, the class shares, and the number of properties in each class. The total class value in business class is clearly dominated by the small number of very high value properties, just as it is for the residential side.
The property tax is not a tax on income, it is a tax on wealth, and while all pay the same rate, based on property class and wealth, the rate is set by taking the total amount of money to be collected from the whole class, and dividing that by the total mass of property value of all the properties in that class. The unfairness of averaging in that circumstance with respect to disposable income, not wealth, has been noted.
The whole mass of tax to be paid is known as the LEVY. This means the not so well off are financing the very well off, both in business and residential classes, since the only equality is an average result from a range that has very large numbers at one end. Nobody can claim a further subsidy from a rate that is equal to all in the class, but tax fairness also has to do with avoiding regressive aspects where they appear in the structure of a tax. And business already has several dispensations so that it is in no position to claim any further subsidy, which of course does not stop business from grinding away at it through business advocacy organizations. If remedy there should be, it should go to the low value end of the residential class first, where over 60% of the population of ratepayers live.
[the formula for the rate and payment procedure, is set out in the Policy Report of the Director of Finance to the City Committee on Services and Budgets, April 28,2005, at page 4]
Another argument put forward often relying upon the 1995 study done by accountants in Vancouver is the claim that businesses consume less public services of the city than the homeowners do. The KPMG Study is quoted on the point that business tax payers pay 60% of the taxes but consume less than 30% of local services.
[KPMG Report ; Study of Consumption of Tax Supported City Services, Page 7]
The difficulty is that the procedure adopted by the accountants in the Vancouver study amounted to treating the property taxes as as something like a sales tax. They would examine the records of a department, or conduct a count of some type of use like attending a place or answering the phone, to see who had purchased or 'used' a particular service and they work out an overall figure for that. For more general usage they would take a figure derived from counting the hours spent in a particular department to produce a sort of standard overhead percentage of the department labor time devoted to this or that activity and whether the first beneficiary was business or residential. So they developed estimates by counts of proxies. They did not consider the ultimate beneficiary. The difficulties with this approach, a consumption approach to the use of city resources or services, are many, but the most important one is that it is simply not an appropriate way to cost out the reason why a person or business is located in the city nor do their taxes match their use of City services. People do not pay taxes on the basis of a specific amount of services they use, excepting those services that have been shifted to a user pay basis. And it is impractical to work out an acceptable way to measure who ultimately "consumes" city cervices in most cases. This is a view that was adopted by the City Manager and the Council in deciding not to use this "consumption" approach. At one point, even the Vancouver Board of Trade agreed with this conclusion and said as much in one of their publications.
[Vancouver Board of Trade; Letter to Mayor Campbell; April 16,2003; Page 3]
In the case of a business, the city offers as concentration of people providing employees and customers, concentrated travel and freight lines in and out, and in the case of Vancouver, also a port, a railroad terminal, and an international airport. It offers such a variety of people with their skills and capacities in a concentrated area that business will have confidence to come in and expect to be able to get any number of employees who can report to work daily and live nearby; as it can expect to find any number of customers for products reachable within an hour delivery time or available for further delivery by established transport.
A business could locate out in the country if they wanted to avoid property tax in Vancouver, and one only needs to imagine what would happen to big stores, service businesses, large employers attempting to do such a thing to see what a great number of services that business will rely upon. They will not be correctly measured or counted, if one just asks how many times the department store phoned the police or the firemen. The sophistication of City services will be found to march in tandem with the state of growth in population. Consultant , KPMG, did rely however upon a consumption approach, for instance, measuring use of the police department on the basis of things like checking how many times homeowners phoned the police or fire (and to what fire hall in the city) for assistance compared to the various call from business. The only result of a consumption oriented study like that, would be to greatly underestimate the significance of the city reality to the needs of business. The best test of all is location, and if there does not appear to be a tendency of business to drift out of town as a trend, apparently because of raises in the property taxes, then it can be assumed that either it is estimated the City services are well worth the property tax or else the property tax is such a small item that it does not figure importantly in location costs. It may even be that for some business to leave would be a welcome trend, where the City has a plan to re-develop an area with residents moving into newly renovated buildings creating new business opportunities and a city that is not getting hollowed out. Such a plan is obvious in the area now called Yaletown, an area not known for better quality housing since the original construction of the Georgia Street Viaduct, but now a higher rent area with redevelopment from wharehouses to apartments.
The fact is that a number of scholars have made studies of the business tax and their conclusions appear to be that it is not a substantial item in location.
"Notwithstanding these potential problems, survey results have not shown much
support for the importance of taxes, especially property taxes, as to determine
location decisions."
[Business Property Taxation; Kitchen and Slack; Discussion papers series School of Policy Studies, Queens University, Ontario 1993, Page 41]
Again, on Page 43 of this study the comment is made that in the USA where many cities have far greater ability to raise revenue by various forms of taxation (sales tax and income tax as well as property tax), there has therefore been greater interest in location causes. Property tax has not been found to have a significant impact on business location decisions.
In 2005, in the Policy Report of City Finance to the Council at April 28,2005 , it was pointed out that the question of who consumes many city services is not a straightforward one , particularly when direct and indirect benefits are taken into account. In short, a set of user fees for everything is simply not practical as a method of determining use of city services between the two chief classes of rate payers. We can comment that this would be too much like an oldster standing on his front porch and arguing with the neighbor that he should not have to pay some part of the property tax because he no longer uses the road in front of his house, having sold his car when he retired, and therefore, the cost of the city crew working on the street should in some way be deducted as to his share. The end of that development, just as would be the case with extended use of user fees, would not be a community, but chaos, and no real City government at all but a jungle of private walled compounds and hundreds of security firms generating a tyranny for all but a very small number. And a much higher social cost of living, for those who could afford to pay it and live in such a savage place.
The finance director's comments on this matter in the April 28th report were not supportive of the use of consumption based taxes:
"Determining true consumption of city services is not really possible.
Determining who "consumes" many of the services the city provides is not a
straightforward undertaking, particularly when direct and indirect benefits are
taken into account. Who is "consuming" the city's roads, police and fire
services, planning services, library services, and so on? The answers to these
questions may to a large extent be dependent the approach taken to and the
assumptions underlying the analysis." As the finance Director adds, the
Vancouver City Council chose not to pursue the KPMG study.
[Report of the Finance Director to the Committee of CS&B, April 28,2005, Page 9]
This argument is constantly made by business advocate such as the CFIB, that "business, especially small ones, actually use fewer services than homeowners", and reliance is often supported by reference to the KPMG study. We submit this is not supported by the City of Vancouver as shown by the above history. Neither doe it make any sense since it turns the whole idea of a community upside down and this is not a useful way of developing a community.
[CFIB submissions on Property Tax Inequities in Saskatchewan, Page 7]
Another argument made appears to rely on the idea that there is some obligation of municipality to subsidize business. This argument states that most businesses are very small, having fewer than five employees, and operate on very tight profit margins. Thus, they cannot afford to pay business tax. Passing over the obvious response that economic hardship is very true of individuals as well, particularly those who are on fixed incomes, like old age pensioners, and the equally obvious fact that these businesses do not pay the business tax they pass it on, we must submit as stated earlier that this is not relevant to property tax. This is simply a case of what is called special pleading. In fact property tax is very regressive, and if we assumed that it really was a burden to small business, which does not appear to be true in terms of Federal Income taxation then a reasonable remedy would be to introduce a rebate based on 15% of the property tax as required by the existing tax rate, payable from the lowest valued property, with the rebate to be reduced to 0, in regular sequence, at the median property value. This would work but we doubt that it would be a well received idea at the Vancouver Board of Trade which really speaks for large business interests, despite its show of solicitous concern for small business.
Before that would be done, however it would be necessary to first of all reduce the tax in a similar way for all the ratepayers for whom the regressive feature was most onerous and who have no chance at all to make deductions as the business class can do. For this it would be necessary to establish a rebate at 30% of the tax payable based on the tax rate for the lowest value property, declining to 0 at the median property value. Residential owners, the ratepayers of the city, must always come before merchants. This would not involve the homeowner grant, which is a separate expression of the policy we will find clear across Canada, encouraging citizens to have a stake in the economic system by assisting them toward ownership of their own home and so fostering social stability.
Introducing such remedial measures for home owners and small business will reduce regressive aspects of the property tax as it is now, without drawing the City into quick fix measures that only delay tax increases and unfairly load even more burdens onto the paying ratepayers,like term averaging or caps.
Of course there may be some millionaires in $200,000 business properties and some wealthy old people in homes rated at less than $500,000 but in both cases concern here would be to focus attention on income rather than wealth and the property tax has been the preeminent form of wealth tax in our society at the local level. There is no lack of taxation as regards other measures including income tax, imports, sales and excise taxes on specific items like liquor and tobacco.
This argument about who uses City services invites attention to the regressive features of the property tax. Whether one is considering the size of business or the size of residential units, there is a vast difference in the case of Vancouver Between a property owner like the Bentall block where five large office buildings are under common ownership, or a small business tax payer who may own a modest commercial property in South Fraser. The difference is between a few hundred thousand and many hundreds of millions.
The same mill or tax rate applies to both properties within business class, which presently is $15.52 for every $1000 of market value. But that rate is significantly different from the residential rate ($2.52 for each $1000 of market value) because of the total mass of property in each class, the class shares, and the number of properties in each class. The total class value in business class is clearly dominated by the small number of very high value properties, just as it is for the residential side.
The property tax is not a tax on income, it is a tax on wealth, and while all pay the same rate, based on property class and wealth, the rate is set by taking the total amount of money to be collected from the whole class, and dividing that by the total mass of property value of all the properties in that class. The unfairness of averaging in that circumstance with respect to disposable income, not wealth, has been noted.
The whole mass of tax to be paid is known as the LEVY. This means the not so well off are financing the very well off, both in business and residential classes, since the only equality is an average result from a range that has very large numbers at one end. Nobody can claim a further subsidy from a rate that is equal to all in the class, but tax fairness also has to do with avoiding regressive aspects where they appear in the structure of a tax. And business already has several dispensations so that it is in no position to claim any further subsidy, which of course does not stop business from grinding away at it through business advocacy organizations. If remedy there should be, it should go to the low value end of the residential class first, where over 60% of the population of ratepayers live.
[the formula for the rate and payment procedure, is set out in the Policy Report of the Director of Finance to the City Committee on Services and Budgets, April 28,2005, at page 4]
Friday, October 5, 2007
PROPERTY TAX IN VANCOUVER 9
Part 9 Other Taxes Collected by Vancouver
We add that it is not the City of Vancouver that sets certain other elements of the total amount of taxes paid based upon the property tax notice that comes out yearly from the city. Provincial taxes relating to education are collected by the city and appear on the tax notice but the values that are claimed, the method of claiming them, and specifically the amount of these "taxes" are set completely independent of the City by the Province. There are also the other classes of the nine listed in the Assessment Act of which Vancouver derives income from seven as is stated in City Policy reports. Some of the minor ones are set by historical tradition, it seems, some by a formula in a Federal or Provincial law, and with some it is not clear if there is any set rate and it maybe whatever and whenever the Federal Government pleases, (revenue from the Federal business of the Port of Vancouver). Since the proportion of the class shares are fairly close as between business and residential, it may be useful to review the extent to which Residential or Business include items that are perhaps, not really either, and as to the exact amount of the rest, other than residential and business, is it 2% or 5% or what. Should something be added to business, or taken away, and vice versa as to residential,. However, it seems unlikely that the answers to these points will substantially change the tax rate.
Cross-Subsidization Claim
Not only do the advocates of business complain about property tax ratios without any attempt to expain why a difference should exist, they try to introduce, by implication, the argument that there should be no difference at all. They do this by complaining that there is some sort of a cross-subsidization when the ratios of class shares, of business to residential are not equal (1:1) in the different municipalities, although they mean tax rates, not shares. For instance we find the CFIB producing a report complaining about tax inequities and the "tax gap" in Saskatchewan in which they reason that such differences are not equitable and that therefore "...a cross subsidization results."
[Property Tax Inequities in Saskatchewan, publication is CFIB,December 1,2003,page 7]
When tax rates between business ands residential properties are not equitable a
cross-subsidization results. This means that if businesses are paying for more
than their share of services consumed, they are sbsidizing residential property
owners."
A little earlier they say that there should be a "relationship" between the amount of tax paid by business and the costs of the services received by the business. They state:
"When this correlation exists, the tax is fair , based on the benefits received
and accountable, as the consumers of the services know their true cost."
We note the sneaky presumption contained in the statement. They do not say exactly what the relation should be (1 to 1, 7 to 1, 3 to 1?) just that there should be one. Nor do they say why there should be any particular one, just the prim and totally false claim that the consumers will know their true cost. Why? Were they, the ratepayers going to set up their own fire hall? A tax ratio does not imply any particular class share, or vice versa, so how would they know what either is until there has been some experience anyhow? The deceptive intent is clear to see. It is also rather silly. Is business subsidizing residents if more residents call for police help than businesses do? Won't business brag to lure employees or customers that Vancouver is a "safe" city to live in, which it is, or that in Vancouver "crime is going down" which it is in terms of violent crime. But is that not business as a "consumer" of City services? What shall we call it then, one of those Free Riders? Can we abandon efforts to move quickly on "domestics", calls for police help usually from wives with complaints about their spouses, because business is being unfairly taxed for this? If there are lots of fire calls from one neighborhood but very few from the few remaining businesses there, should the business "consumption" be a reason to reduce their property tax? Will business in Vancouver improve the City or the business image of the town when the news goes out that Vancouver has dropped the "zero tolerance rule" for sex or marital assault? Is it useful to try to distinguish between immediate and ultimate consumers of City services?
Shall we have Pay or Burn as a user pay principle for the Fire Department? Can a ratepayer decide to swear off using the sewer, the water lines, the roads, the political acitvities of the Mayor and Council they do not like? Do the dollars paid in property tax by any ratepayer have any direct relationship at all to "consumption"?
Has any user fee ever been set on the basis of true cost or has it been set to raise a revenue to help pay a service, and sometimes to mollify these business advocates? If so that is assuredly a wrong use of Property tax. But that is what is done.
Suppose the residential owner in Vancouver said, well it appears that business does pay the property tax at the beginning but it is all recovered from its customers, and even if it was not business can and does deduct the full value of the tax from the taxes it pays to the Federal Government, so they really cannot lose. It seems to us that we are subsidizing business by nearly $240 million a year (2005) and we think we are entitled to a level playing field, so business should pay off all that, with the individual payments based on the whole amount spread over the class and rated to each member proportionate to their property value as a proportion of the whole, same as the tax rate. This subsidy must be recovered (although it is hard to see how we can get one step ahead of Revenue Canada). Business has been babied too long and it is time it stepped up and paid its share.
The argument actually made by the CFIB was that if the tax gap is between 2.9 for one community and 1.3 for another regarding an imaginary property worth $100,000 as it will be taxed in each different community, that this was some sort of a cross-subsidization of residential property owners. The argument is a clear case of special pleading. Any business coming into one of these communities could readily determine what their property tax was before the located there. And if they thought it was too high in one community, they could relocate to another. With nearly as many different rates as there are communities in BC (153) they have their choice, if we assume the basis of location is property tax. As we have mentioned earlier, the likelihood is that the property tax is a small amount in the consideration of the firm's costs so that not much attention will be paid to it. It would not be a factor in location at all. The economic verbiage around this argument about location, cross-subsidization, inefficient use of resources, opportunity cost, unknown cost-of-service and so forth is simply posturing and has no real commercial value. Whatever happened to competition anyway, since there really should be a bunch of rates with the buyer of City services and locations (business) free to shop around.
Part 10 to come
We add that it is not the City of Vancouver that sets certain other elements of the total amount of taxes paid based upon the property tax notice that comes out yearly from the city. Provincial taxes relating to education are collected by the city and appear on the tax notice but the values that are claimed, the method of claiming them, and specifically the amount of these "taxes" are set completely independent of the City by the Province. There are also the other classes of the nine listed in the Assessment Act of which Vancouver derives income from seven as is stated in City Policy reports. Some of the minor ones are set by historical tradition, it seems, some by a formula in a Federal or Provincial law, and with some it is not clear if there is any set rate and it maybe whatever and whenever the Federal Government pleases, (revenue from the Federal business of the Port of Vancouver). Since the proportion of the class shares are fairly close as between business and residential, it may be useful to review the extent to which Residential or Business include items that are perhaps, not really either, and as to the exact amount of the rest, other than residential and business, is it 2% or 5% or what. Should something be added to business, or taken away, and vice versa as to residential,. However, it seems unlikely that the answers to these points will substantially change the tax rate.
Cross-Subsidization Claim
Not only do the advocates of business complain about property tax ratios without any attempt to expain why a difference should exist, they try to introduce, by implication, the argument that there should be no difference at all. They do this by complaining that there is some sort of a cross-subsidization when the ratios of class shares, of business to residential are not equal (1:1) in the different municipalities, although they mean tax rates, not shares. For instance we find the CFIB producing a report complaining about tax inequities and the "tax gap" in Saskatchewan in which they reason that such differences are not equitable and that therefore "...a cross subsidization results."
[Property Tax Inequities in Saskatchewan, publication is CFIB,December 1,2003,page 7]
When tax rates between business ands residential properties are not equitable a
cross-subsidization results. This means that if businesses are paying for more
than their share of services consumed, they are sbsidizing residential property
owners."
A little earlier they say that there should be a "relationship" between the amount of tax paid by business and the costs of the services received by the business. They state:
"When this correlation exists, the tax is fair , based on the benefits received
and accountable, as the consumers of the services know their true cost."
We note the sneaky presumption contained in the statement. They do not say exactly what the relation should be (1 to 1, 7 to 1, 3 to 1?) just that there should be one. Nor do they say why there should be any particular one, just the prim and totally false claim that the consumers will know their true cost. Why? Were they, the ratepayers going to set up their own fire hall? A tax ratio does not imply any particular class share, or vice versa, so how would they know what either is until there has been some experience anyhow? The deceptive intent is clear to see. It is also rather silly. Is business subsidizing residents if more residents call for police help than businesses do? Won't business brag to lure employees or customers that Vancouver is a "safe" city to live in, which it is, or that in Vancouver "crime is going down" which it is in terms of violent crime. But is that not business as a "consumer" of City services? What shall we call it then, one of those Free Riders? Can we abandon efforts to move quickly on "domestics", calls for police help usually from wives with complaints about their spouses, because business is being unfairly taxed for this? If there are lots of fire calls from one neighborhood but very few from the few remaining businesses there, should the business "consumption" be a reason to reduce their property tax? Will business in Vancouver improve the City or the business image of the town when the news goes out that Vancouver has dropped the "zero tolerance rule" for sex or marital assault? Is it useful to try to distinguish between immediate and ultimate consumers of City services?
Shall we have Pay or Burn as a user pay principle for the Fire Department? Can a ratepayer decide to swear off using the sewer, the water lines, the roads, the political acitvities of the Mayor and Council they do not like? Do the dollars paid in property tax by any ratepayer have any direct relationship at all to "consumption"?
Has any user fee ever been set on the basis of true cost or has it been set to raise a revenue to help pay a service, and sometimes to mollify these business advocates? If so that is assuredly a wrong use of Property tax. But that is what is done.
Suppose the residential owner in Vancouver said, well it appears that business does pay the property tax at the beginning but it is all recovered from its customers, and even if it was not business can and does deduct the full value of the tax from the taxes it pays to the Federal Government, so they really cannot lose. It seems to us that we are subsidizing business by nearly $240 million a year (2005) and we think we are entitled to a level playing field, so business should pay off all that, with the individual payments based on the whole amount spread over the class and rated to each member proportionate to their property value as a proportion of the whole, same as the tax rate. This subsidy must be recovered (although it is hard to see how we can get one step ahead of Revenue Canada). Business has been babied too long and it is time it stepped up and paid its share.
The argument actually made by the CFIB was that if the tax gap is between 2.9 for one community and 1.3 for another regarding an imaginary property worth $100,000 as it will be taxed in each different community, that this was some sort of a cross-subsidization of residential property owners. The argument is a clear case of special pleading. Any business coming into one of these communities could readily determine what their property tax was before the located there. And if they thought it was too high in one community, they could relocate to another. With nearly as many different rates as there are communities in BC (153) they have their choice, if we assume the basis of location is property tax. As we have mentioned earlier, the likelihood is that the property tax is a small amount in the consideration of the firm's costs so that not much attention will be paid to it. It would not be a factor in location at all. The economic verbiage around this argument about location, cross-subsidization, inefficient use of resources, opportunity cost, unknown cost-of-service and so forth is simply posturing and has no real commercial value. Whatever happened to competition anyway, since there really should be a bunch of rates with the buyer of City services and locations (business) free to shop around.
Part 10 to come
Saturday, September 22, 2007
PROPERTY TAX IN VANCOUVER 8
Part 8 Property Tax is Regressive
The unfair feature here is not the property tax or the business tax rate. but the fact that the property tax is extremely regressive, both for business and for the homeowner.But this will scarcely trouble the owner of a $20 million dollar building. It is clearly unfair to the more than 60% of the homeowners who make up the majority of the residential class and cannot take the income tax advantage or the other benefits for business (deductions for property tax, mortgage interest, depreciation operating expenses). The value of a property is not determined by the city or in any subjective way, but is determined by the BC Assessment Authority, an independent Crown corporation over which the City of Vancouver has no influence. The problem, then for the homeowner, is in the tax rate, which reflects the class share and the share assigned to business begins to appear as far too small. If we can imagine the business class as in any real way burdened by this tax, it is the more than 60% of the small business part of the class who are burdened.
The way in which the city proceeds is, sort of backwards. The city determines what new money it will need for the current year to operate, and then will apply that, the LEVY against the existing distribution for the previous year, then make the division and the resulting tax rates. "Given the share distribution of classes in 2005, it would then be the case that 57% would be paid by residential and 43% by business (ignoring the other small classes). and the distribution of the tax to be paid by each rate payer in these classes would then be worked out against the fair market value of the property concerned on the basis of a certain amount of money for each $1000.00 of market value. And this money contribution based on the "mill" rate (the tax rate per each $1000 of value in a property) wold be the contribution of each member of the class proportionate to the total amount of the money needed, in the LEVY, as the share of the class. In other words, any argument relating to affordibility or whether business are doing well or not, would be completely irrelevant just as it would be for the homeowner in the case where property value suddenly were rising very quickly.
So the procedure is basically one of averaging. Both business and residential will find out how much they are to pay by multiplying each unit of $1000 of their property value against the "mill" or tax rate. AS we have mentioned, in 2005 that is just over $3 for residential and over $16 for business. But that rate is the result of dividing the total mass of money to be collected from the class (its share of the LEVY) by the total mass of money that is the sum of all the values of all the properties in that class.
One can say it is fair because every owner will have to pay at the same "rate". And it is clear that each class will have to come up with its "share" based on the total values of all the property in the class. However, it is well known that and average is not fair (or useful) where there are large values clustered away from the center of the usual distribution (the usual is the bell shaped distribution) and one then speaks of distributions that are "skewed". This one is royally skewed. The reason for that in this case is because the tax rate takes a unit value based on simple division, but there are very large numbers at one end of the distribution.
Inquiries to the City Finance Department produce the injformation that of the 12,341 properties in the business class 62% are valued at $500,000 or less; 15% are from that figure up to $1,000,000; 18% are from $1 to $5 million'; and 5% are greater than $5 million. Recalling that many of the last group will be in the hundreds of millions, it is clear that a simple average is not fair, that is, is not representative of any central tendency in the distribution. On the residential side, out of over 156,000 properties, 10% have values up to $200 thousand; 50% up to $500,000; 36% up to $1,500,000; and 3% are worth more than $1,500,000, so that the same problem is present. A small number of people/units, own or possess most of the property value. The great mass of the tax is born by those who have the greatest number of properties (over 60%) but the least wealth in property value individually. It is true the tax is based on a single rate for each class, but $4 per $1000 of assessed value is a far greater money weight to the person whose wealth is reflected in a $500,000 house than one in a $1,500,000 million house. Are there not wealthy people in modest houses? We would not doubt it, but we can say that fortunately the most obvious characteristic of the rich is that there are very few of them.
Calgary Leads the Pack in 2001 in the West
We have mentioned that according to the CFIB, as of 2001, it is Calgary rather than Vancouver which has the highest business property tax contribution in Western Canada related to the tax rate. As of 2001 Calgary commenced an inquiry into its separate business tax to see whether it should be continued or disposed of in some way, much like Vancouver had done in the 1980s. When the report came in several years later (2003) the Calgary Council decided to keep its separate business tax. As the Vancouver business tax had been, the Calgary business tax is a tax on the value of the occupied space and is paid by the business, not the owner of the space.
[City of Calgary; Preliminary Project Report; September 2002; Business Tax Review Page 8. The Calgary City Council decision was made at July 2003].
In other words, the place in Western Canada where the business share in absolute terms is the geeatest is Calgary and that position has recently been reviewed by an exceedingly pro-busines Council in a pro-business town and the position has been maintained. There does not appear to be any good reason to think that Vancouver should not be able to match Calgary in terms of business tax contributions. Certainly, it would not be a reason for business to relocate from Vancouver to Calgary.
Part 9 to come
The unfair feature here is not the property tax or the business tax rate. but the fact that the property tax is extremely regressive, both for business and for the homeowner.But this will scarcely trouble the owner of a $20 million dollar building. It is clearly unfair to the more than 60% of the homeowners who make up the majority of the residential class and cannot take the income tax advantage or the other benefits for business (deductions for property tax, mortgage interest, depreciation operating expenses). The value of a property is not determined by the city or in any subjective way, but is determined by the BC Assessment Authority, an independent Crown corporation over which the City of Vancouver has no influence. The problem, then for the homeowner, is in the tax rate, which reflects the class share and the share assigned to business begins to appear as far too small. If we can imagine the business class as in any real way burdened by this tax, it is the more than 60% of the small business part of the class who are burdened.
The way in which the city proceeds is, sort of backwards. The city determines what new money it will need for the current year to operate, and then will apply that, the LEVY against the existing distribution for the previous year, then make the division and the resulting tax rates. "Given the share distribution of classes in 2005, it would then be the case that 57% would be paid by residential and 43% by business (ignoring the other small classes). and the distribution of the tax to be paid by each rate payer in these classes would then be worked out against the fair market value of the property concerned on the basis of a certain amount of money for each $1000.00 of market value. And this money contribution based on the "mill" rate (the tax rate per each $1000 of value in a property) wold be the contribution of each member of the class proportionate to the total amount of the money needed, in the LEVY, as the share of the class. In other words, any argument relating to affordibility or whether business are doing well or not, would be completely irrelevant just as it would be for the homeowner in the case where property value suddenly were rising very quickly.
So the procedure is basically one of averaging. Both business and residential will find out how much they are to pay by multiplying each unit of $1000 of their property value against the "mill" or tax rate. AS we have mentioned, in 2005 that is just over $3 for residential and over $16 for business. But that rate is the result of dividing the total mass of money to be collected from the class (its share of the LEVY) by the total mass of money that is the sum of all the values of all the properties in that class.
One can say it is fair because every owner will have to pay at the same "rate". And it is clear that each class will have to come up with its "share" based on the total values of all the property in the class. However, it is well known that and average is not fair (or useful) where there are large values clustered away from the center of the usual distribution (the usual is the bell shaped distribution) and one then speaks of distributions that are "skewed". This one is royally skewed. The reason for that in this case is because the tax rate takes a unit value based on simple division, but there are very large numbers at one end of the distribution.
Inquiries to the City Finance Department produce the injformation that of the 12,341 properties in the business class 62% are valued at $500,000 or less; 15% are from that figure up to $1,000,000; 18% are from $1 to $5 million'; and 5% are greater than $5 million. Recalling that many of the last group will be in the hundreds of millions, it is clear that a simple average is not fair, that is, is not representative of any central tendency in the distribution. On the residential side, out of over 156,000 properties, 10% have values up to $200 thousand; 50% up to $500,000; 36% up to $1,500,000; and 3% are worth more than $1,500,000, so that the same problem is present. A small number of people/units, own or possess most of the property value. The great mass of the tax is born by those who have the greatest number of properties (over 60%) but the least wealth in property value individually. It is true the tax is based on a single rate for each class, but $4 per $1000 of assessed value is a far greater money weight to the person whose wealth is reflected in a $500,000 house than one in a $1,500,000 million house. Are there not wealthy people in modest houses? We would not doubt it, but we can say that fortunately the most obvious characteristic of the rich is that there are very few of them.
Calgary Leads the Pack in 2001 in the West
We have mentioned that according to the CFIB, as of 2001, it is Calgary rather than Vancouver which has the highest business property tax contribution in Western Canada related to the tax rate. As of 2001 Calgary commenced an inquiry into its separate business tax to see whether it should be continued or disposed of in some way, much like Vancouver had done in the 1980s. When the report came in several years later (2003) the Calgary Council decided to keep its separate business tax. As the Vancouver business tax had been, the Calgary business tax is a tax on the value of the occupied space and is paid by the business, not the owner of the space.
[City of Calgary; Preliminary Project Report; September 2002; Business Tax Review Page 8. The Calgary City Council decision was made at July 2003].
In other words, the place in Western Canada where the business share in absolute terms is the geeatest is Calgary and that position has recently been reviewed by an exceedingly pro-busines Council in a pro-business town and the position has been maintained. There does not appear to be any good reason to think that Vancouver should not be able to match Calgary in terms of business tax contributions. Certainly, it would not be a reason for business to relocate from Vancouver to Calgary.
Part 9 to come
Monday, September 17, 2007
WEIRD AND MORE WEIRD EVENTS IN THE USA
CURRENT events in the USA bring to mind the last days of the CIA invasion of Cuba back in the 60s. There was the swirl of absolute BS at that time, with guns lined up on American beaches, tales of brave pilots who had escaped with their lives and their planes from Cuba, mysterious references to code phrases using symbolic language about "the fish", there was a bunch of news items every day. But in the last days, just as we heard about the landing in the Bay of Pigs, it seemed nothing could stop the news stories about Cuban farmers running down to the beach to attack the CIA troops (actually mercenaries) with long knives used to cut sugar cane erupting out of the Radio.
But that was the weird thing. In the very media that was carrying the American propaganda line we also saw each of these stories burned to a crisp within hours. The most spectacular was the way newsmen at Miami stormed over the story of the brave pilots and tore it to shreds in 6 hours, with a series of news flashes to the radio and TV audience as each item emerged from the furious struggle of truth against fiction. I remember so clearly how one newsman went out to look at one of the escaping planes and denounced the story after he had seen the calibre of the bullet holes stitched across the belly of one plane.
But all this came to a riveting climax late one night as a newsman came on the radio, broadcasting from New York, and it was one of the main media network corporations. I heard the words, strong and clear coming over the radio from a studio high in a New York building: "....it is now believed the entire operation was organized, financed, and led by the CIA...". The news reader sounded confident, as though he stood at the head of a very large organization, and this that he spoke was the "word". I guess in retrospect he did, and it was.
And that was it, since the whole murderous attempt to wrench the history of Cuba away from the people and hand it back to US commercial interests and gangsters foundered in a furious episode of hand to hand combat on a Cuban beach. We later saw footage of flashing knives and bodies floating in the surf, we heard on the radio many voices crying "We are with you Fidele" (as later translations identified) and saw people not dressed like soldiers running in small groups down the beach as the invaders tried to swim away.
Well the Cubans were surely very brave and very, very together. But look, at the American media, it worked very well on that occasion. And there was something about the way it worked, so much like a storm tide swelling up the beach in powerful wave after wave, that is much like what is starting up now in the USA. Maybe there is something about human history we completely miss with our restless search to nail down the facts and lay them out in proper order before we announce conclusions. We have to do this, it is our duty as human beings, and this task well done becomes the foundation of true history. But there are times, as Thomas Paine said, that "try men's souls" and I think this is when the big waves come roaring up the beach.
Decline and fall of the CIA invasion was far more significant to me than the Missile Crisis, which seemed staged on all sides like an opera, All very predictable and after the first days a bit boring.
But the Bay of Pigs was something else. And I suspect, well, I hope, we are moving very quickly into another one of those historical moments when murder, and the truth will out. The great lie that is being fostered now is that there is any reason at all for the USA to invade, or more likely, bomb Iran. There is large and reasonable suspicion that there is a plan to use nuclear weapons, the very thing that Bush claimed he wished to invade Iraq to stop the use of , weapons of mass destruction. We need a high tide of truth about Bush, the USA, the truly destructive role of Israel, and an accounting for the millions that have been slaughtered by the US doomed pursuit of Empire, and we need the truth to to come out now.
And surely the Cubans are entitled, at long last, to recovery of their property at Guantanamo. There is a need to destroy all the recent constructions there,and for the ground to be plowed with salt. I hope that time comes soon as well. But that needs a big change in American policy, so I guess it has to be a very big wave indeed.
But that was the weird thing. In the very media that was carrying the American propaganda line we also saw each of these stories burned to a crisp within hours. The most spectacular was the way newsmen at Miami stormed over the story of the brave pilots and tore it to shreds in 6 hours, with a series of news flashes to the radio and TV audience as each item emerged from the furious struggle of truth against fiction. I remember so clearly how one newsman went out to look at one of the escaping planes and denounced the story after he had seen the calibre of the bullet holes stitched across the belly of one plane.
But all this came to a riveting climax late one night as a newsman came on the radio, broadcasting from New York, and it was one of the main media network corporations. I heard the words, strong and clear coming over the radio from a studio high in a New York building: "....it is now believed the entire operation was organized, financed, and led by the CIA...". The news reader sounded confident, as though he stood at the head of a very large organization, and this that he spoke was the "word". I guess in retrospect he did, and it was.
And that was it, since the whole murderous attempt to wrench the history of Cuba away from the people and hand it back to US commercial interests and gangsters foundered in a furious episode of hand to hand combat on a Cuban beach. We later saw footage of flashing knives and bodies floating in the surf, we heard on the radio many voices crying "We are with you Fidele" (as later translations identified) and saw people not dressed like soldiers running in small groups down the beach as the invaders tried to swim away.
Well the Cubans were surely very brave and very, very together. But look, at the American media, it worked very well on that occasion. And there was something about the way it worked, so much like a storm tide swelling up the beach in powerful wave after wave, that is much like what is starting up now in the USA. Maybe there is something about human history we completely miss with our restless search to nail down the facts and lay them out in proper order before we announce conclusions. We have to do this, it is our duty as human beings, and this task well done becomes the foundation of true history. But there are times, as Thomas Paine said, that "try men's souls" and I think this is when the big waves come roaring up the beach.
Decline and fall of the CIA invasion was far more significant to me than the Missile Crisis, which seemed staged on all sides like an opera, All very predictable and after the first days a bit boring.
But the Bay of Pigs was something else. And I suspect, well, I hope, we are moving very quickly into another one of those historical moments when murder, and the truth will out. The great lie that is being fostered now is that there is any reason at all for the USA to invade, or more likely, bomb Iran. There is large and reasonable suspicion that there is a plan to use nuclear weapons, the very thing that Bush claimed he wished to invade Iraq to stop the use of , weapons of mass destruction. We need a high tide of truth about Bush, the USA, the truly destructive role of Israel, and an accounting for the millions that have been slaughtered by the US doomed pursuit of Empire, and we need the truth to to come out now.
And surely the Cubans are entitled, at long last, to recovery of their property at Guantanamo. There is a need to destroy all the recent constructions there,and for the ground to be plowed with salt. I hope that time comes soon as well. But that needs a big change in American policy, so I guess it has to be a very big wave indeed.
Sunday, September 16, 2007
PROPERTY TAX IN VANCOUVER 7
Part 7
The Facts About Tax Deductions
It was the Federal tax deduction in the United States which led to a judicial review in one city in Canada as well as questions in others. As we have mentioned, people in one city saw that not only could business deduct the real estate taxes as expenses, from taxes, as well as other items, but so could the homeowner. Then and now business in the United States could deduct property or real estate taxes among other expenses or laying out funds with a view to producing an income.
[United States Tax Code; Internal Revenue Service; Department of the Treasury Publication 530 (2003)"What you can and cannot Deduct"]
In a current publication the following is stated with regard to the homeowner:
"...most state and local governments charge an annual tax on the value of real
property. This is called a real estate tax. You can deduct the tax if it is
based on the assessed value of the real property and the taxing authority
charges a uniform rate on all property in its jurisdiction. The tax must be for
the welfare of the general public and not be a payment for a special privilege
granted or service rendered to you."
The position is very different in Canada. Business could make its deductions just as in the United States [Income Tax Act, Section 18[ but the homeowner could not with respect to residential property. So, business could deduct the whole property tax, showing that as a cost of doing business. It could and does pay no property tax at all in result and its receipt of the tax from its customers will not be considered income for taxation. Since the tax LEVY of business or its share in 2005 was about $239 million in Vancouver, we can say that is the amount that business did not ultimately pay. It was initially paid by business, but was part of their expenses added to the amount paid to them by their customers as part of the total price of the good or service, and then was deducted from taxes on their income payable to the Federal government. So, business property property tax is intended to flow through to their customers. It is paid by business customers which in most cases are also people who pay the residential property tax except for those business owners who live outside the City and who will doubtless pay property tax to some other taxing authority.
Against this reality the business claim that the property tax is an unfair burden on them is irrational. They do not pay it at all. They also benefit, as does the homeowner,described below, who uses a part of their home for the operation of a business. There are deductions from the income of such business for not only property tax, but also mortgage interest, maintenance, operating expense, depreciation, all proportionate to the amount of the property that is used.
But the homeowner does pay, and the homeowner in Canada unlike 280 million Americans, who have a very similar economic system and can make a variety of property related deductions, the Canadian homeowner cannot unless it based on a business.
This fact is mentioned very briefly by the consultant KPMG, and the small group of people representing residents on the advisory committee to Council which considered the property tax in 1995. This group all said they opposed the shifting of the property tax in favor of business from 1995 as business was demanding (these were 5 of the 12 persons on the Committee) but it seems no heed was paid to them by the pro business majority making the recommendation that the "burden" on business should be lightened.
[Report to Council; Standing Committee on CS&B dated April 13, 1995; Page 3,4]
[and see City of Vancouver; Task Force on Property Tax; Report 1995; at p;age 19]
In one City in Atlantic Canada, as we have mentioned, after the 1944 review, the response of the Municipal Council was to let the business rate drift upward. In other words, follow a policy of higher contribution rates for business. This pattern is to be found all across Canada today, in the big cities as in the small centers. The contribution share for the business class in Toronto is much higher than for Vancouver, and that for Calgary seems a little more, due to the combination of a business tax as well as the property tax (as of 2001). One of the publications of the Vancouver Board of Trade we have mentioned has an attached schedule of municipal tax shares which shows tax rate ratios which vary from levels of more than 7 to 1 down to 1 to 1 for 150 Municipalities in BC. Paradoxically, in this document, the Board of Trade is calling for a "level playing field" though it is not clear how that is to be achieved with such a spread, nor does it take into account the difference between tax share and tax rate. A 1:1 tax share will not produce a 1:1 tax rate as regards residential:business. As is usual in pro business publications, the implication is that any distribution at all which is greater than 1 to 1 is unfair to business, so how they settle on any in the range of ratios from more than seven to one on down is not clear. Nor do they explain the fact that business does not pay anything where the full tax is recovered from customers and is, moreover, tax deductible. It is difficult to see now even a tax rate ratio of 1:1 would deliver what business wants since that depends on the numbers of business and the money required from the class as a proportion when set against the total of all property values in the class, that is, the mass of market values for business properties and the stated business share of the tax LEVY.
Another argument contended against in the foregoing pro business material was the claim that business had a greater ability to pay, or that business is better able to afford it. But both of these arguments is a misdirection. Businesses are being taxed on property, wealth, whether or not they have the greater ability to pay, not depending on whether or not they are better able to afford it, than someone else. If it were otherwise there would have to be a separate class for property owners whose income was limited to the CPP or th OAP (Canada Pension Plan; Old Age Pension). In some cases that is not enough to maintain the grounds around some homes, let alone pay the taxes on long owned and clear title homes. The owners are being taxed on the basis of the market value of their property after the city has determined the total financial tax LEVY it requires to operate for the current year and made a division as to what share of that levy will be paid by each of the property classes. The result is based on that market value and has noting whatever to do with ability to pay or success of a particular business, just as the incomes of individuals is not relevant. It stands to reason that if the property is the site of a business at all then that business is going about its operations to produce a good or service and collecting, in its pricing for the normal costs of operation and profit, then such property tax will be recovered as sales progress and will not be recovered if sales do not progress. But that case is no basis at all for special relief as it is not for relief for the residential share. Of course, it is usually the case that advocates of both shares will often seek relief for their interest, but since that is not a justification for the residential side, it is even less so on the business side due to the severely regressive features of the property tax. Indeed, where a particular business pays a lot more among business property owners, that is simply a reflection of wealth and the absolute size of what is in fact a subsidy. In other words, the other side of tax regresivity is a subsidy.
There are other large bonuses for business.The chief business advocate against the property tax is the Vancouver Board of Trade and that body usually publishes its broadsides at dinners in hotels where the event is set up by one of their allies, such as the Downtown Vancouver Business Improvement Association. We have noted elsewhere in this study how this organization operates with assistance from the City, which collects membership fees for it, gives the whole thing the appearance of a required municipal payment by setting out the fees in the yearly Tax Notice ,then hands over all the money with no deduction for collection cost to the resulting wholly Artificial DVBIA. A subsidy within a subsidy, one might say.
[Letter from City of Vancouver Financial Planning, dated February 28,2006;l response to inquiries as to the financing of DVBIA].
Another free rider is the hotels. Here the City collects a hotel tax then pays every dollar of it to Tourism Vancouver and other business apparently without deduction of one cent for this extraordinary service. Tourism accounts for about 5% of the GDP Gross Domestic Product of the Province, and that has been the high number for decades, often settling below that figure, so there is no reasonable justification for this gift to the free rider hotels. All jobs in a field of commerce or industry are valuable, but why such a gift to this particular interest? Tourism rose to just over 5% of GDP in the year of Expo 86, a successful trade fair or exhibition which lasted six months, after which it gradually drifted back down to 3.9% where it stayed for years and only inched up to nearly 5% by 2001 with the low Canadian dollar period. Since the decline of the American dollar, clearly a long run trend with the Canadian dollar now near parity, the bonus due to a very low Canadian dollar has very nearly disappeared, so we can expect a decline to historical levels again in tourism. The only reasonable conclusion is that Vancouver's gift to the Hotels has not really been of much public benefit at all.
[See Tourism industry publications of BC Stats and StatsCan. The author is preparing as study of the Tourism Industry in BC but that will not be posted till about Fall,2007]
Since a tourist is defined as someone who travels more than 80 kilometers from their home and is away from home for up to a year, there is no effective separation between business and tourism as most people would understand it. As the term is used in the "industry" it will also include large numbers of people who come into the airport or across the border on their way to somewhere other than Vancouver or BC. In general it is clear there is no such thing as a tourist "industry" really since tourism is an activity with features involving many occupations and numbers need to be plucked out of many fields or industries like accommodation, travel, and restaurants with resulting lack of testability. It is very hard to regard a continuous stream of consultants heading for one of the three Prince George Pulp mills as tourists in any rational sense of the word, though that is a big item in plane travel to and from Prince George, but there it is.
Tourist discussion seems to be infected, as well, by the Dare to be Great School of Business Forecasting, as promoted by the business advocates we have mentioned and Tourism BC, another beneficiary of public subsidy via the Hotel Tax, which has a Board of Governors dominated by hotel "industry" personnel. Where the City has plowed millions into tourist promotion by handing it to business which seems to spend a lot of it in denouncing an "inequitable property tax" or is congratulating themselves on what wonderful people they are at ratepayer paid for dinners, where no discernible public improvement has resulted, it is time to put a stop to such waste. We put quotation marks around the reference "tourist industry" because of its elusive nature, its dubious value in terms of the claims made and its vulnerability to excessive enthusiasm due to the use of severely exaggerated statistics such as the unreasonable multiplication of each dollar spent without rational justification.
(This field is thick with claims based on a technique very like a Pyramid scheme which insiders call "the multiplier"). Our point here is that if Business wishes to spend money as is presently done, and make these claims, let it support the activity with its own money. Here they do not pay it once but they are taking it twice.
[Value of Tourism; Tourism BC; February 2003, pages 5 to 7]
We can note that as of 2005 the collections for business improvement areas and Hotel Tax were $5,469 and $8,657 millions, respectively, or a total of $14,126 million. All of this sum went to these private organizations, a figure which is close to one half of the revenues collected by the Parks Board ($32,969 millions) where the ordinary taxpayer will still have to pay over $4.00 to go to a public swimming pool. These funds are not within the property tax, but may be used to compare the relative value of the remarkable services provided to business by the City, for which business pays not one thin dime. It is a fair conclusion that most of the tax that seems to be "imposed" on business is in fact paid by the same people who pay the residential tax, and over 60% of those are living in houses valued at under $500,000.
[City of Vancouver; 2005 Budget; Revenue details]
[Letter from City of Vancouver February 28,2006; Finance Department; re property tax distribution; response to inquiries.]
So we have business leadership taking the money collected for them gratis by the City and using these funds derived from membership fees squeezed from thousands of small businesses to attack a tax they do not even pay, in the end, and complaining about how they are mistreated. We say"squeezed" because it appears the membership fees collected by the city show up as an item on the property tax statement, so that it would be a bold small businessman who would quarrel about that.
It is interesting to see how the people behind some of these organizations think. One person was a representative of Point Grey Village BIA, one of the 18 Business Improvement Associations in Vancouver and one that has a business address not even in the four blocks of the "Point Grey Village" on 10th Avenue (its address miles away from Point Grey). He spoke at a dinner meeting about the business tax costs for a building in downtown Vancouver which was being converted from offices to residential. He said that the building as an office building was assessed at $20 million but would be worth $47 million as a residential building. The present property tax of $576,000 would be changed to $310,850. He said that was a $260,000 difference that would have to be made up somewhere, and he thought that it would be business that would pay. Why the speaker believed the public should be forced to give this business a huge double subsidy is not explained.
[Vancouver Board of Trade; Event Summary; dated March 16,2005; Speech of Point Grey Village Representative, page 1]
What is most noteworthy about these remarks is that the speaker must have known that the City of Vancouver does not define property classes into residential and business. The Province of BC does that in the Assessment Act. And it is the Provincial Assessment Authority under that act (not controlled or influenced by the City under its Provincial legislative act the Vancouver Charter) that sets the value of properties. The senior government, the Province, sets the market value of properties, not the City.
If a building owner is playing a card game with other owners where all have contributed a start up pot of $10 each for 10 players, and one decides to leave and take his $10 with him, then the rest will have to come up with a further contribution of $1./11 to make up the same pot (plus one cent), but that is not because the City (to leave the analogy) has set the class definition of a class or the value of each members' property. In fact, if any member decided to leave the "business" game and go over to the "residential" game, taking his pot (building) with him as he renovates it and switches the class it belongs to in result, he will simply find a different "pot" rule in place. That is an investment decision taken by a single member in a completely voluntary way. All the City did was to say there would be different pots for each class and the members of each class must each one contribute their proportionate amount to the total money that constitutes that class share and pay in the relation that it stands to the total values of all the "member" (property values). That normally leads to a contribution by a business that derives from a tax rate that is a number of times the residential rate. The Board of Trade is not even claiming that the ratio should end, only that it should be smaller than 5:1 and they a talk about (sometimes) 3:1.
Since there is no suggestion by the speaker that the converted building is not valued properly at a much higher figure in residential use than was the case in commercial use, it is hard to see what the complaint is here. Should the player who leaves the business class game still be responsible to leave his pot (tax rate and value) when he leaves? Should he be entitled to enter the next (residential) game subsidized by all the others members in that class by having to pay in a much smaller pot than the other players in that game have had to pay in? Further, unless the City starts giving the business class a tax rate that produces a ratio of considerably less than 1:1 the same result in general will happen whenever a use changes in this way. The argument here seems even more unreasonable than the usual ones.
As to the tax being so high it will scare off business, the fact is that the property tax is a very small amount against the scale of any genuine business located on the property and the property tax itself is such a small burden that studies have not found any substantial evidence that the property tax makes any difference at all as to their choice of what location to operate in. If a business could not afford the property tax, unlikely as that seems since the tax was based simply upon the market value of the property, the property could readily be sold and some other location found where the business could operate. If that cannot be done, then either there is no economic future for that business or there is some reason why the community should totally subsidize that small businessman (or that big businessman such as is claimed for sports stadiums, convention centers and other money losing white elephants and the like). It is not at all unlikely that this may seem reasonable to someone who would like to operate such a business, but that is not the usual economic posture (so far as what they will say openly) that one sees in the fulminations of the Canadian Tax Foundation, the Board of Trade, the CFIB and their front men.
Another argument made by business is the claim that while business can deduct the property tax from income, the homeowner has a similar benefit since he is not taxed on rent that he would have to pay if he lived elsewhere, or that he would earn if he did not live at home. This is called imputed rent.
It is one of those debater's points about which one can say there is far less here than meets the eye. Net rental income from rental property is not large. From the gross the landlord will deduct property tax, other operating expenses, depreciation and mortgage interest ( all of which business can and does do now). Then there is the large administrative cost for the nation of requiring many millions of people to do this and document it on their tax returns, with no objective measure of what the costs and returns should be, and checks to see it has been done, by Revenue Canada. The total costs of this must be set against the a extra amount collected, to evaluate the usefulness of this whole scheme. Depreciation alone can be 20% of the rent and property tax would eat up much of the rest while even a reasonable amount of renovation wold easily use up much of the rest of the "rent". Repair and maintenance would leave little for Ottawa. If taxpayers have to do this you can bet they are going to be "aggressive" in their cost estimations. Then if there is a substantial mortgage on the property, likely if the owner is actually renting it or being compared to someone who does, there may even be a negative quantity (another deduction) at the end of the reckoning. The imaginary "renter" may wind up with a further deduction for some of his expenses of various kinds from his tax otherwise payable (that is, tax not calculated from rent income).
Anyhow, the property tax is based on the market value and that must be taken to include , since it is a measure of wealth the capitalized value of future imputed rental income. In other words, the property tax is already a tax on this imputed rent since it is tax on wealth as measured by the market. So this claim for imputed rent is misconceived and may well be far more trouble than it is worth to collect it. It could even be a negative quantity in many cases. One suspects that experienced tax specialists within government have long since reviewed the likely yield from a tax on imputed rent and reached this conclusion, so that is why we do not hear of it except in academic writing.
[Comment on article"Income Tax Concessions for Owner Occupied Housing"; John C., Weicher; Hudson Institute; Housing Policy Debate; Volume 11, Issue No. 3; Fannie May Foundation 2000].
Part 8 to come
The Facts About Tax Deductions
It was the Federal tax deduction in the United States which led to a judicial review in one city in Canada as well as questions in others. As we have mentioned, people in one city saw that not only could business deduct the real estate taxes as expenses, from taxes, as well as other items, but so could the homeowner. Then and now business in the United States could deduct property or real estate taxes among other expenses or laying out funds with a view to producing an income.
[United States Tax Code; Internal Revenue Service; Department of the Treasury Publication 530 (2003)"What you can and cannot Deduct"]
In a current publication the following is stated with regard to the homeowner:
"...most state and local governments charge an annual tax on the value of real
property. This is called a real estate tax. You can deduct the tax if it is
based on the assessed value of the real property and the taxing authority
charges a uniform rate on all property in its jurisdiction. The tax must be for
the welfare of the general public and not be a payment for a special privilege
granted or service rendered to you."
The position is very different in Canada. Business could make its deductions just as in the United States [Income Tax Act, Section 18[ but the homeowner could not with respect to residential property. So, business could deduct the whole property tax, showing that as a cost of doing business. It could and does pay no property tax at all in result and its receipt of the tax from its customers will not be considered income for taxation. Since the tax LEVY of business or its share in 2005 was about $239 million in Vancouver, we can say that is the amount that business did not ultimately pay. It was initially paid by business, but was part of their expenses added to the amount paid to them by their customers as part of the total price of the good or service, and then was deducted from taxes on their income payable to the Federal government. So, business property property tax is intended to flow through to their customers. It is paid by business customers which in most cases are also people who pay the residential property tax except for those business owners who live outside the City and who will doubtless pay property tax to some other taxing authority.
Against this reality the business claim that the property tax is an unfair burden on them is irrational. They do not pay it at all. They also benefit, as does the homeowner,described below, who uses a part of their home for the operation of a business. There are deductions from the income of such business for not only property tax, but also mortgage interest, maintenance, operating expense, depreciation, all proportionate to the amount of the property that is used.
But the homeowner does pay, and the homeowner in Canada unlike 280 million Americans, who have a very similar economic system and can make a variety of property related deductions, the Canadian homeowner cannot unless it based on a business.
This fact is mentioned very briefly by the consultant KPMG, and the small group of people representing residents on the advisory committee to Council which considered the property tax in 1995. This group all said they opposed the shifting of the property tax in favor of business from 1995 as business was demanding (these were 5 of the 12 persons on the Committee) but it seems no heed was paid to them by the pro business majority making the recommendation that the "burden" on business should be lightened.
[Report to Council; Standing Committee on CS&B dated April 13, 1995; Page 3,4]
[and see City of Vancouver; Task Force on Property Tax; Report 1995; at p;age 19]
In one City in Atlantic Canada, as we have mentioned, after the 1944 review, the response of the Municipal Council was to let the business rate drift upward. In other words, follow a policy of higher contribution rates for business. This pattern is to be found all across Canada today, in the big cities as in the small centers. The contribution share for the business class in Toronto is much higher than for Vancouver, and that for Calgary seems a little more, due to the combination of a business tax as well as the property tax (as of 2001). One of the publications of the Vancouver Board of Trade we have mentioned has an attached schedule of municipal tax shares which shows tax rate ratios which vary from levels of more than 7 to 1 down to 1 to 1 for 150 Municipalities in BC. Paradoxically, in this document, the Board of Trade is calling for a "level playing field" though it is not clear how that is to be achieved with such a spread, nor does it take into account the difference between tax share and tax rate. A 1:1 tax share will not produce a 1:1 tax rate as regards residential:business. As is usual in pro business publications, the implication is that any distribution at all which is greater than 1 to 1 is unfair to business, so how they settle on any in the range of ratios from more than seven to one on down is not clear. Nor do they explain the fact that business does not pay anything where the full tax is recovered from customers and is, moreover, tax deductible. It is difficult to see now even a tax rate ratio of 1:1 would deliver what business wants since that depends on the numbers of business and the money required from the class as a proportion when set against the total of all property values in the class, that is, the mass of market values for business properties and the stated business share of the tax LEVY.
Another argument contended against in the foregoing pro business material was the claim that business had a greater ability to pay, or that business is better able to afford it. But both of these arguments is a misdirection. Businesses are being taxed on property, wealth, whether or not they have the greater ability to pay, not depending on whether or not they are better able to afford it, than someone else. If it were otherwise there would have to be a separate class for property owners whose income was limited to the CPP or th OAP (Canada Pension Plan; Old Age Pension). In some cases that is not enough to maintain the grounds around some homes, let alone pay the taxes on long owned and clear title homes. The owners are being taxed on the basis of the market value of their property after the city has determined the total financial tax LEVY it requires to operate for the current year and made a division as to what share of that levy will be paid by each of the property classes. The result is based on that market value and has noting whatever to do with ability to pay or success of a particular business, just as the incomes of individuals is not relevant. It stands to reason that if the property is the site of a business at all then that business is going about its operations to produce a good or service and collecting, in its pricing for the normal costs of operation and profit, then such property tax will be recovered as sales progress and will not be recovered if sales do not progress. But that case is no basis at all for special relief as it is not for relief for the residential share. Of course, it is usually the case that advocates of both shares will often seek relief for their interest, but since that is not a justification for the residential side, it is even less so on the business side due to the severely regressive features of the property tax. Indeed, where a particular business pays a lot more among business property owners, that is simply a reflection of wealth and the absolute size of what is in fact a subsidy. In other words, the other side of tax regresivity is a subsidy.
There are other large bonuses for business.The chief business advocate against the property tax is the Vancouver Board of Trade and that body usually publishes its broadsides at dinners in hotels where the event is set up by one of their allies, such as the Downtown Vancouver Business Improvement Association. We have noted elsewhere in this study how this organization operates with assistance from the City, which collects membership fees for it, gives the whole thing the appearance of a required municipal payment by setting out the fees in the yearly Tax Notice ,then hands over all the money with no deduction for collection cost to the resulting wholly Artificial DVBIA. A subsidy within a subsidy, one might say.
[Letter from City of Vancouver Financial Planning, dated February 28,2006;l response to inquiries as to the financing of DVBIA].
Another free rider is the hotels. Here the City collects a hotel tax then pays every dollar of it to Tourism Vancouver and other business apparently without deduction of one cent for this extraordinary service. Tourism accounts for about 5% of the GDP Gross Domestic Product of the Province, and that has been the high number for decades, often settling below that figure, so there is no reasonable justification for this gift to the free rider hotels. All jobs in a field of commerce or industry are valuable, but why such a gift to this particular interest? Tourism rose to just over 5% of GDP in the year of Expo 86, a successful trade fair or exhibition which lasted six months, after which it gradually drifted back down to 3.9% where it stayed for years and only inched up to nearly 5% by 2001 with the low Canadian dollar period. Since the decline of the American dollar, clearly a long run trend with the Canadian dollar now near parity, the bonus due to a very low Canadian dollar has very nearly disappeared, so we can expect a decline to historical levels again in tourism. The only reasonable conclusion is that Vancouver's gift to the Hotels has not really been of much public benefit at all.
[See Tourism industry publications of BC Stats and StatsCan. The author is preparing as study of the Tourism Industry in BC but that will not be posted till about Fall,2007]
Since a tourist is defined as someone who travels more than 80 kilometers from their home and is away from home for up to a year, there is no effective separation between business and tourism as most people would understand it. As the term is used in the "industry" it will also include large numbers of people who come into the airport or across the border on their way to somewhere other than Vancouver or BC. In general it is clear there is no such thing as a tourist "industry" really since tourism is an activity with features involving many occupations and numbers need to be plucked out of many fields or industries like accommodation, travel, and restaurants with resulting lack of testability. It is very hard to regard a continuous stream of consultants heading for one of the three Prince George Pulp mills as tourists in any rational sense of the word, though that is a big item in plane travel to and from Prince George, but there it is.
Tourist discussion seems to be infected, as well, by the Dare to be Great School of Business Forecasting, as promoted by the business advocates we have mentioned and Tourism BC, another beneficiary of public subsidy via the Hotel Tax, which has a Board of Governors dominated by hotel "industry" personnel. Where the City has plowed millions into tourist promotion by handing it to business which seems to spend a lot of it in denouncing an "inequitable property tax" or is congratulating themselves on what wonderful people they are at ratepayer paid for dinners, where no discernible public improvement has resulted, it is time to put a stop to such waste. We put quotation marks around the reference "tourist industry" because of its elusive nature, its dubious value in terms of the claims made and its vulnerability to excessive enthusiasm due to the use of severely exaggerated statistics such as the unreasonable multiplication of each dollar spent without rational justification.
(This field is thick with claims based on a technique very like a Pyramid scheme which insiders call "the multiplier"). Our point here is that if Business wishes to spend money as is presently done, and make these claims, let it support the activity with its own money. Here they do not pay it once but they are taking it twice.
[Value of Tourism; Tourism BC; February 2003, pages 5 to 7]
We can note that as of 2005 the collections for business improvement areas and Hotel Tax were $5,469 and $8,657 millions, respectively, or a total of $14,126 million. All of this sum went to these private organizations, a figure which is close to one half of the revenues collected by the Parks Board ($32,969 millions) where the ordinary taxpayer will still have to pay over $4.00 to go to a public swimming pool. These funds are not within the property tax, but may be used to compare the relative value of the remarkable services provided to business by the City, for which business pays not one thin dime. It is a fair conclusion that most of the tax that seems to be "imposed" on business is in fact paid by the same people who pay the residential tax, and over 60% of those are living in houses valued at under $500,000.
[City of Vancouver; 2005 Budget; Revenue details]
[Letter from City of Vancouver February 28,2006; Finance Department; re property tax distribution; response to inquiries.]
So we have business leadership taking the money collected for them gratis by the City and using these funds derived from membership fees squeezed from thousands of small businesses to attack a tax they do not even pay, in the end, and complaining about how they are mistreated. We say"squeezed" because it appears the membership fees collected by the city show up as an item on the property tax statement, so that it would be a bold small businessman who would quarrel about that.
It is interesting to see how the people behind some of these organizations think. One person was a representative of Point Grey Village BIA, one of the 18 Business Improvement Associations in Vancouver and one that has a business address not even in the four blocks of the "Point Grey Village" on 10th Avenue (its address miles away from Point Grey). He spoke at a dinner meeting about the business tax costs for a building in downtown Vancouver which was being converted from offices to residential. He said that the building as an office building was assessed at $20 million but would be worth $47 million as a residential building. The present property tax of $576,000 would be changed to $310,850. He said that was a $260,000 difference that would have to be made up somewhere, and he thought that it would be business that would pay. Why the speaker believed the public should be forced to give this business a huge double subsidy is not explained.
[Vancouver Board of Trade; Event Summary; dated March 16,2005; Speech of Point Grey Village Representative, page 1]
What is most noteworthy about these remarks is that the speaker must have known that the City of Vancouver does not define property classes into residential and business. The Province of BC does that in the Assessment Act. And it is the Provincial Assessment Authority under that act (not controlled or influenced by the City under its Provincial legislative act the Vancouver Charter) that sets the value of properties. The senior government, the Province, sets the market value of properties, not the City.
If a building owner is playing a card game with other owners where all have contributed a start up pot of $10 each for 10 players, and one decides to leave and take his $10 with him, then the rest will have to come up with a further contribution of $1./11 to make up the same pot (plus one cent), but that is not because the City (to leave the analogy) has set the class definition of a class or the value of each members' property. In fact, if any member decided to leave the "business" game and go over to the "residential" game, taking his pot (building) with him as he renovates it and switches the class it belongs to in result, he will simply find a different "pot" rule in place. That is an investment decision taken by a single member in a completely voluntary way. All the City did was to say there would be different pots for each class and the members of each class must each one contribute their proportionate amount to the total money that constitutes that class share and pay in the relation that it stands to the total values of all the "member" (property values). That normally leads to a contribution by a business that derives from a tax rate that is a number of times the residential rate. The Board of Trade is not even claiming that the ratio should end, only that it should be smaller than 5:1 and they a talk about (sometimes) 3:1.
Since there is no suggestion by the speaker that the converted building is not valued properly at a much higher figure in residential use than was the case in commercial use, it is hard to see what the complaint is here. Should the player who leaves the business class game still be responsible to leave his pot (tax rate and value) when he leaves? Should he be entitled to enter the next (residential) game subsidized by all the others members in that class by having to pay in a much smaller pot than the other players in that game have had to pay in? Further, unless the City starts giving the business class a tax rate that produces a ratio of considerably less than 1:1 the same result in general will happen whenever a use changes in this way. The argument here seems even more unreasonable than the usual ones.
As to the tax being so high it will scare off business, the fact is that the property tax is a very small amount against the scale of any genuine business located on the property and the property tax itself is such a small burden that studies have not found any substantial evidence that the property tax makes any difference at all as to their choice of what location to operate in. If a business could not afford the property tax, unlikely as that seems since the tax was based simply upon the market value of the property, the property could readily be sold and some other location found where the business could operate. If that cannot be done, then either there is no economic future for that business or there is some reason why the community should totally subsidize that small businessman (or that big businessman such as is claimed for sports stadiums, convention centers and other money losing white elephants and the like). It is not at all unlikely that this may seem reasonable to someone who would like to operate such a business, but that is not the usual economic posture (so far as what they will say openly) that one sees in the fulminations of the Canadian Tax Foundation, the Board of Trade, the CFIB and their front men.
Another argument made by business is the claim that while business can deduct the property tax from income, the homeowner has a similar benefit since he is not taxed on rent that he would have to pay if he lived elsewhere, or that he would earn if he did not live at home. This is called imputed rent.
It is one of those debater's points about which one can say there is far less here than meets the eye. Net rental income from rental property is not large. From the gross the landlord will deduct property tax, other operating expenses, depreciation and mortgage interest ( all of which business can and does do now). Then there is the large administrative cost for the nation of requiring many millions of people to do this and document it on their tax returns, with no objective measure of what the costs and returns should be, and checks to see it has been done, by Revenue Canada. The total costs of this must be set against the a extra amount collected, to evaluate the usefulness of this whole scheme. Depreciation alone can be 20% of the rent and property tax would eat up much of the rest while even a reasonable amount of renovation wold easily use up much of the rest of the "rent". Repair and maintenance would leave little for Ottawa. If taxpayers have to do this you can bet they are going to be "aggressive" in their cost estimations. Then if there is a substantial mortgage on the property, likely if the owner is actually renting it or being compared to someone who does, there may even be a negative quantity (another deduction) at the end of the reckoning. The imaginary "renter" may wind up with a further deduction for some of his expenses of various kinds from his tax otherwise payable (that is, tax not calculated from rent income).
Anyhow, the property tax is based on the market value and that must be taken to include , since it is a measure of wealth the capitalized value of future imputed rental income. In other words, the property tax is already a tax on this imputed rent since it is tax on wealth as measured by the market. So this claim for imputed rent is misconceived and may well be far more trouble than it is worth to collect it. It could even be a negative quantity in many cases. One suspects that experienced tax specialists within government have long since reviewed the likely yield from a tax on imputed rent and reached this conclusion, so that is why we do not hear of it except in academic writing.
[Comment on article"Income Tax Concessions for Owner Occupied Housing"; John C., Weicher; Hudson Institute; Housing Policy Debate; Volume 11, Issue No. 3; Fannie May Foundation 2000].
Part 8 to come
Saturday, September 15, 2007
PROPERTY TAX IN VANCOUVER 6
Part 6
Other Arguments Put Forward by Business Advocates
We have mentioned that business seeks to claim that it is somehow unfair that there is any disproportion in the tax shares paid. This seems to be largely an argument put forward by implication since there is no direct commentary on it, but that is what must be inferred from an argument like that set out by the CFIB in its submission to the City of Saskatoon in 2005, where we see the following at Paragraph 2.2:
"2.2 Property Tax Misconceptions-many people believe that business should face
higher property taxes than residents, that the tax gap is, in fact warranted. It
is a commonly held view that business should pay more because they have a
greater ability to pay and are able to deduct property taxes from income taxes.
However, these reasons are misconceptions and it is important to set the record
straight."
[CFIB web page. Submissions to Saskatoon City Council Re Budget; April 11,2005; Para. 2/2]
We would think the first point for the business advocate to explain before complaining about the distribution of shares is to explain why there is any uneven distribution at all, why there are separate classes, and how the existing distribution came to be at all. This they fail to do. Since they say that it is unfair that business should pay more and this is based on a misconception, they are saying by implication businesses should not pay more at all. But the only evidence on this point at all that can be found in the record is the vague impression conveyed to the KPMG accountants in 1995, which confirms that business believed it should be paying more than residential.
In the next paragraph, they set out as follows:
"A lasting but inaccurate justification for imposing higher property taxes on
business has been that they are better sable to afford it. This is simply not
true. Many small firms operate on very tight profit margins and when high
property taxes squeeze these margins further, they have fewer resources to put
back in the business. As a result, firms may have to forgo opportunities for
expansion which means job creation opportunities are also lost."
[CFIB- Brief to Submissions to the Saskatoon City Council; Re: 2005 Bidget; dated
April 11,2005, Page 2.]
Taking these points in order, we see again that the argument is being made that it is simply unfair that there should be any higher property taxes on business than there are on residential owners. The complete failure of the business advocates to explain or comment at all on the fact that the distribution is similar all across Canada as a pattern of the taxes payable by the business class being a multiple of those paid by the residential class, operates as something of an admission that there should be such a distribution. In other words, the only question left is whether the distribution is somehow unreasonable in the case of Vancouver where it is apparently reasonable for just about everyone else in the country. This is perhaps the most outstanding feature of all business propaganda on the different shares of the property tax, a very loud silence on the question of where did it come from and why is it there at all. We have to note that the share paid in Vancouver by business is not much different from that paid in Calgary (tax ratio of 5.33 according to the CFIB at 2004) let alone Toronto where the business share is 64% of taxes paid, that is, the shares division of the two classes alone is that high.
[City of Vancouver, Policy Report; Finance Director; Committee on CS&B, April 28, 2005, Page 12; where Toronto non residential % of total tax LEVY is stated at 64%]
The next argument made has to do with tax deductibility, and here the business advocates say as follows:
"The argument that business benefit from a tax deductibility of property taxes
and therefore they can absorb higher tax rates does not stand up either. It
presumes that all businesses are able to benefit from tax deductions. Business
that are struggling, just breaking even, or losing money don't receive a
deductibility "benefit" ".
[CFIB Submission to City of Saskatoon; April 11, 2005, Page 2; and see also CFIB
Property Tax Inequities in BC; (2003) at Page 6 (which can be obtained on CFIB web page).
The Statement is wrong in a number of ways. First of all, if a property owner cannot pay their house taxes, they cannot phone up the City and say: "Hello fellows, I haven't got it for you this year, had a bad year due to layoff, etc. Phone me in a couple of years and I will let you know if I can afford it then.: If the homeowner does not pay his property tax, he will be assessed a penalty by way of a punishing claim for interest for several years and if he cannot pay it all off by three years, the city will put the property up for sale in order to obtain payment of the taxes and interest. In general there is no ability of the homeowner to throw off his tax obligation and so there is no basis for the business to argue that they should either. There can be delays, or deferments, but these measures do only that,defer what must be paid. They are usually done to favor business as well and mean that all the ratepayers in the class who do not receive them have to pay more since no one can reduce the tax LEVY as the City is not allowed to operate on a deficit. In result such measures just ratchet up the regressive features of the tax.
As to whether or not the business may "benefit" from the deduction we doubt there is a business that will not claim it, or fail to include it proportionately in the price of its good or service. The fact is that from a tax deductibility point of view it is not a matter of it being some kind of a deductible benefit, the simple fact is that a business must either own property or rent it to use as a place to bring its employees to work on material to make a product or a service and sell it.
All of the costs of that productions are what the business is doing, and the property taxes are much the same as an other other expense which must be paid in order to produce a product or service and sell it. Whether the business is doing well or not is beside the point, just as it would be for a homeowner. So this argument is not valid in terms of the equivalence or the payment obligation of the different classes. The home owner has to pay it all; business can deduct it all. Does business expect a deduction greater than 100%?
Another claim put forward by business is that the homeowner is not taxed on the capital gain when the home is passed on to the next generation and this is somehow unfair to business. This is a deferment, not a tax reduction, and even where the gain is taxed at a specially low rate it hardly compares with the fountain of tax favors that go to business. The fact is business is able to benefit from a very large number of subsidies, exemptions, favorable rules, grants, special low interest provisions (like the capital gains exemption for small business) all apparently based on some idea of public policy to aid business. It has also long been public policy in many advanced western countries to favor economic activity and social stability by encouraging home ownership. This leads to a policy of eliminating capital gains on the principal residence where the ratepayer lives as well and refusing to introduce imaginary or "imputed" rent on one's own home.
Ownership of the home is the main and often the only significant property that is owned by the majority of the population which until recently did not have much stock ownership and even now mainly hold institutional claims in the form of tax deferment (Registered Retirement Savings Plans or RRSPs) to support retirement. It is an important influence on the distribution of wealth, and it is clearly vital for the majority of the population to have some stake in the social order for the goal of social stability. House values will not jump to the same beat as volatile stock market changes so that the goal of maintaining social stability is best advanced by broader home ownership, at younger ages, across most of the general population as a valuable social goal. So far as meeting any claim that such a policy is "unfair: to business, the first answer is simply that this is nonsense, but even if someone thinks it is unfair this is an intended unfairness. The community, which in this case is the nation, has decided that social stability and other goals of the nation, including supporting house construction, are usefully advanced by this policy.
Part 7 to follow
Other Arguments Put Forward by Business Advocates
We have mentioned that business seeks to claim that it is somehow unfair that there is any disproportion in the tax shares paid. This seems to be largely an argument put forward by implication since there is no direct commentary on it, but that is what must be inferred from an argument like that set out by the CFIB in its submission to the City of Saskatoon in 2005, where we see the following at Paragraph 2.2:
"2.2 Property Tax Misconceptions-many people believe that business should face
higher property taxes than residents, that the tax gap is, in fact warranted. It
is a commonly held view that business should pay more because they have a
greater ability to pay and are able to deduct property taxes from income taxes.
However, these reasons are misconceptions and it is important to set the record
straight."
[CFIB web page. Submissions to Saskatoon City Council Re Budget; April 11,2005; Para. 2/2]
We would think the first point for the business advocate to explain before complaining about the distribution of shares is to explain why there is any uneven distribution at all, why there are separate classes, and how the existing distribution came to be at all. This they fail to do. Since they say that it is unfair that business should pay more and this is based on a misconception, they are saying by implication businesses should not pay more at all. But the only evidence on this point at all that can be found in the record is the vague impression conveyed to the KPMG accountants in 1995, which confirms that business believed it should be paying more than residential.
In the next paragraph, they set out as follows:
"A lasting but inaccurate justification for imposing higher property taxes on
business has been that they are better sable to afford it. This is simply not
true. Many small firms operate on very tight profit margins and when high
property taxes squeeze these margins further, they have fewer resources to put
back in the business. As a result, firms may have to forgo opportunities for
expansion which means job creation opportunities are also lost."
[CFIB- Brief to Submissions to the Saskatoon City Council; Re: 2005 Bidget; dated
April 11,2005, Page 2.]
Taking these points in order, we see again that the argument is being made that it is simply unfair that there should be any higher property taxes on business than there are on residential owners. The complete failure of the business advocates to explain or comment at all on the fact that the distribution is similar all across Canada as a pattern of the taxes payable by the business class being a multiple of those paid by the residential class, operates as something of an admission that there should be such a distribution. In other words, the only question left is whether the distribution is somehow unreasonable in the case of Vancouver where it is apparently reasonable for just about everyone else in the country. This is perhaps the most outstanding feature of all business propaganda on the different shares of the property tax, a very loud silence on the question of where did it come from and why is it there at all. We have to note that the share paid in Vancouver by business is not much different from that paid in Calgary (tax ratio of 5.33 according to the CFIB at 2004) let alone Toronto where the business share is 64% of taxes paid, that is, the shares division of the two classes alone is that high.
[City of Vancouver, Policy Report; Finance Director; Committee on CS&B, April 28, 2005, Page 12; where Toronto non residential % of total tax LEVY is stated at 64%]
The next argument made has to do with tax deductibility, and here the business advocates say as follows:
"The argument that business benefit from a tax deductibility of property taxes
and therefore they can absorb higher tax rates does not stand up either. It
presumes that all businesses are able to benefit from tax deductions. Business
that are struggling, just breaking even, or losing money don't receive a
deductibility "benefit" ".
[CFIB Submission to City of Saskatoon; April 11, 2005, Page 2; and see also CFIB
Property Tax Inequities in BC; (2003) at Page 6 (which can be obtained on CFIB web page).
The Statement is wrong in a number of ways. First of all, if a property owner cannot pay their house taxes, they cannot phone up the City and say: "Hello fellows, I haven't got it for you this year, had a bad year due to layoff, etc. Phone me in a couple of years and I will let you know if I can afford it then.: If the homeowner does not pay his property tax, he will be assessed a penalty by way of a punishing claim for interest for several years and if he cannot pay it all off by three years, the city will put the property up for sale in order to obtain payment of the taxes and interest. In general there is no ability of the homeowner to throw off his tax obligation and so there is no basis for the business to argue that they should either. There can be delays, or deferments, but these measures do only that,defer what must be paid. They are usually done to favor business as well and mean that all the ratepayers in the class who do not receive them have to pay more since no one can reduce the tax LEVY as the City is not allowed to operate on a deficit. In result such measures just ratchet up the regressive features of the tax.
As to whether or not the business may "benefit" from the deduction we doubt there is a business that will not claim it, or fail to include it proportionately in the price of its good or service. The fact is that from a tax deductibility point of view it is not a matter of it being some kind of a deductible benefit, the simple fact is that a business must either own property or rent it to use as a place to bring its employees to work on material to make a product or a service and sell it.
All of the costs of that productions are what the business is doing, and the property taxes are much the same as an other other expense which must be paid in order to produce a product or service and sell it. Whether the business is doing well or not is beside the point, just as it would be for a homeowner. So this argument is not valid in terms of the equivalence or the payment obligation of the different classes. The home owner has to pay it all; business can deduct it all. Does business expect a deduction greater than 100%?
Another claim put forward by business is that the homeowner is not taxed on the capital gain when the home is passed on to the next generation and this is somehow unfair to business. This is a deferment, not a tax reduction, and even where the gain is taxed at a specially low rate it hardly compares with the fountain of tax favors that go to business. The fact is business is able to benefit from a very large number of subsidies, exemptions, favorable rules, grants, special low interest provisions (like the capital gains exemption for small business) all apparently based on some idea of public policy to aid business. It has also long been public policy in many advanced western countries to favor economic activity and social stability by encouraging home ownership. This leads to a policy of eliminating capital gains on the principal residence where the ratepayer lives as well and refusing to introduce imaginary or "imputed" rent on one's own home.
Ownership of the home is the main and often the only significant property that is owned by the majority of the population which until recently did not have much stock ownership and even now mainly hold institutional claims in the form of tax deferment (Registered Retirement Savings Plans or RRSPs) to support retirement. It is an important influence on the distribution of wealth, and it is clearly vital for the majority of the population to have some stake in the social order for the goal of social stability. House values will not jump to the same beat as volatile stock market changes so that the goal of maintaining social stability is best advanced by broader home ownership, at younger ages, across most of the general population as a valuable social goal. So far as meeting any claim that such a policy is "unfair: to business, the first answer is simply that this is nonsense, but even if someone thinks it is unfair this is an intended unfairness. The community, which in this case is the nation, has decided that social stability and other goals of the nation, including supporting house construction, are usefully advanced by this policy.
Part 7 to follow
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