Saturday, May 23, 2020

My opinion - rebalancing taxes

Here in Ontario, and generally, across Canada, there are three major ways that governments take in taxes. Income taxes, Consumption or Sales taxes, and Property taxes.

At this time, the Federal government charges the most in Income tax. 15% is the lowest rate, and 33% is the highest (as of 2019). Ontario does charge income taxes, but its lowest rate is 5%, and its highest is 13%, roughly.

Sales taxes are mostly charged by the province (8%) vs the federal government (5%)

And property taxes, while they vary wildly, are charged by cities. Toronto for example charges 0.44% for its residential rate while the province charges 0.15% for education (roughly)

This means that, while multiple levels of government charge multiple taxes, that, in majority, most income taxes go to the feds, most sales taxes go to the province, and most property taxes go to the municipalities.

This needs to change.

The federal government has more power to be economically flexible than any province does. Due to its size, and its position as the 'national' government, it gets the best interest rates, and it can dictate fiscal policy. It is extremely flexible when comes to money, and can sustain and pay off a debt better than any other level of government.

Municipal governments are the opposite. They tend to be much weaker when it comes to economic flexibility. Provinces meanwhile are in the middle.

As such, I propose a change.

Income taxes should go, by in large, to municipalities. Both the Federal government, and Provincial governments, would collect income taxes, but cities should be collecting large amounts of income tax. This tax would be charged where it is earned. There would be rules for instances such as uber, where you may earn income in multiple municipalities, but for jobs tied to physical locations, the income tax would go to the municipality in which it is earned. This would help larger cities deal with the natural consequence of being the main employment hub for nearby areas, and the increase costs on infrastructure and public transit that this brings.

Consumption/Sales taxes meanwhile, would only see a slightly change. Just as all 3 levels of government would be now charging income tax, all 3 levels will take in sales taxes. In general, the current balance, with the provinces taking in the lions share, would remain as it is.

Property taxes, however, would now become Federal. Like the above, all three levels of government would be able to take in property taxes, but the federal government would charge the largest share. This will help to better balance rural vs urban needs, as we are constantly seeing rural government services wind down due to lack of money. Property taxes, charged on a single uniform federal rate, will re-balance the tax burden to discourage the endless suburban sprawl that has only recently slowed down thanks to tough provincial policies.

The overall tax take would not change, but how much of each tax is paid would likely see a shift. Property taxes would likely go up while income taxes go down. As such, those owning large amounts of property, or owning particularly expensive property, would end up paying more. The poor, weather rural or urban, would likely not see much of a change in terms of overall taxes paid, as the slight increase in property taxes would be offset by less income taxes. The rich however would see a rural-urban split, as the new more uniform property taxes will discourage more rural, and larger estate, in favor of smaller, more urban homes. Lower income tax rates on the rich in cities (fueled by the fact that cities tend to concentrate high-income earners, and thus, cities can afford to have lower income tax rates) would help attract them to the cities. Meanwhile the rural poor, who are often hurt by urban-friendly policies (such as counting a car against you when applying for welfare) will be helped by this re-balance

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