McQuaig: Tax Phobia Benefits the Wealthy

At those average prices agents must do quite well on commissions for sales. You would think that there should be other ways as well that Toronto could raise money. Maybe there should be Hogtown Lottery! A voluntary tax on the poor and working class such as lotteries, bingos, etc are always popular and keep alive the Canadian Dream.


Tax phobia benefits the wealthy
>by Linda McQuaig
August 9, 2007
It seems almost incomprehensible. Despite the urgent need to find a solution to the global warming crisis, the City of Toronto is contemplating deep cuts to our public transit system—one of the few public programs that move us toward a solution.

But we're told there is no choice. Otherwise, the city would have to raise taxes.

The proposed cuts to Toronto's subway system—and other vital city services—illustrate how truly short-sighted our rigid obsession with low taxes has become. We've adopted the notion that the highest duty of politicians is to keep taxes low, rather than to make our society—and our world—work better.

The Toronto example is particularly compelling, partly because there is a viable alternative available in the land transfer tax proposed by Mayor David Miller. But city council deferred a decision on the tax last month, following an aggressive anti-tax campaign orchestrated by the Toronto Real Estate Board, which claimed the tax “targets people who can least afford it.”

In fact, just the opposite is true. The tax—imposed on property sales, with higher rates on bigger properties—targets people most able to afford it. A top rate of 2 per cent applies on properties worth more than $400,000.

Essentially, it amounts to a small tax on the enormous wealth accumulating in the hands of the privileged minority who own property in Toronto.

The truth is that there's a largely invisible class line that runs through the city, separating those who own homes from those who don't.

Of course, not everyone who owns a home in Toronto is rich. But the possibility of owning even a modest home—unless you bought when prices were lower—has increasingly moved beyond the reach of most city dwellers.

A household typically needs an income of $106,000 to afford a standard, two-storey Toronto home—which puts it out of the reach of roughly 80 per cent of Toronto households, according to Michael Shapcott, an analyst with the Wellesley Institute. Even a standard condo is unaffordable to about 60 per cent of households.

Of course, those who bought when prices were lower can maintain their homes on lower incomes—and can cash in and trade up.

Homeowners, particularly those at the upper end, have seen their personal wealth rise dramatically in the hot real estate market of recent years. They've been aided by the Canadian tax system, which permits the profit, or capital gain, from a house sale to go tax-free—unlike income from employment or from other capital gains.

So while a construction worker earning $50,000 pays tax on his income, a homeowner receiving a $50,000 profit selling his house pays nothing. The bigger the profit—and profits on Rosedale mansions can amount to hundreds of thousands of dollars—the bigger the tax saving.

So it's absurd to suggest, as some realtors have, that the land transfer tax would put home ownership out of reach of ordinary people. Home ownership is already out of reach of ordinary people, due to the dramatic price increases, which are partly fuelled by the generous tax treatment of home ownership.

For that matter, realtors' fees are a bigger stumbling block for home buyers. The average Toronto house—which sold for $381,963 in June—would face a land transfer tax levied by the city of $4,244. The realtors' fee was $19,098.

So is it really such a tough choice for the city: either cut vital public services that affect us all—or impose a small tax on the city's privileged homeowning elite?

Linda McQuaig's column is originally published by The Toronto Star.