Thread by @gordperks

1. The relationship between taxes and affordability was hotly contested during this year's Toronto budget debate. Let's explore.

2. Mayor Tory and his allies have been saying that the main reason to keep taxes low is that people can't afford higher taxes. There's a lot wrong with this claim. I want to spend time on two ways it's wrong.

3. First, a common rhetorical ploy is to talk about taxes as a thing unto themselves. They simply take money away from people. This allows the claim that more taxes mean people get poorer. It's nonsense. Taxes pay for services. Services save people money.

4, Consider: if we don't subsidize transit with taxes, we would offer a lot less transit. With less transit, transportation costs go up for a lot of people: the have to buy a car (or a second car), more gas, more parking etc..

5. Or: without public spending on childcare many couples would have to have one parent stop working. (The same is true to a much bigger degree with public schools. Think about the world where there is no public funding of education.)Taxes buy services, services save people money.

6. But wait, some say wouldn't be cheaper to let the private market deliver these services? This leads to an interesting digression. I won't get deeply into it except to throw out two phrases: "natural monopoly" and "above economic profit". Either way taxes still buy services.

7. Now onto the interesting part. Who are these people we talk about when we talk about affordability? Different Torontonians pay different amounts of property tax and benefit differently from public services.

8. In our current arrangement a property tax increase above the rate of inflation (and the marginal increase in service that buys) effects different groups differently.

Most people who don't own property live in apartment buildings.

9. Because of a recent rule established by the Province the City cannot increase taxes on apartment buildings. A property tax increase costs them nothing but does provide more service to them. They come out ahead.

10. Prior to that rule the City had a policy of increasing property taxes on apartment buildings at half the rate of the regular property tax increase. So tenants came out ahead in that regime too.

11. Let's look at people who own their own homes. Property taxes are calculated by multiplying the tax rate by the value of the home. It is perfectly linear. If home A is worth twice as much as home B, the taxes on A are twice the taxes on B.

12. Importantly, the people at A do not get twice the services of B. Since the people at A pay more and don't get more, the extra they pay is distributed to other people.

13. It is critical to understand that the value of homes is not evenly distributed. There are many more homes which are below the average value than there are homes which are above the average value. Think of the right tail of a bell curve.

14. That means that MOST homeowners pay less than the average. It's fair to say that typically they receive an average amount of services. Therefore, most homeowners come out ahead.

15. Yes, the minority who are above average likely pay more than the get. However, the efficiency of shared infrastructure may put some of this group into the "comes out ahead" category. Also, the further above average the value of your home is the worse the deal gets.

16. So clearly a increasing property taxes benefits a majority of Torontonians (tenants and people who's property is below average value). We can't say for sure how large that majority is. I've seen some educated guesses that it's about 80%, but we really don't know.

17. There is a final caveat. Owning a home is a form of owning wealth. Wealth and income are not the same thing. There are people on fixed income who are facing increasing taxes. We shield many of them from property tax increases through tax deferrals until the house is sold.

18. In conclusion, property tax increases (and the services they buy) make Toronto more affordable most Torontonians. Those who wind up paying more than they get have the most housing wealth in the City. - end