Property Taxes: Regressive or Progressive?
In last week’s class, we learned that municipalities rely heavily on property taxes and user fees to help fund the services they provide. For example, in the City of Toronto’s 2019 Budget, of the 83% of funding that came from own-source municipal revenues, approximately 32% came from property taxes. However, as we discussed in class, property taxes have been criticized for a number of reasons — they work backwards, they are seen as privileging homeowners, they are regressive and hard to raise. What I found particularly interesting was that while some argue that property taxes are regressive, others argue that they’re progressive. However, before diving into this debate, it will be helpful to know how property taxes are calculated first.
Property taxes in Toronto are set backwards. This means that every year, municipalities decide how much money they need and set their property taxes accordingly. In other words, they determine what tax rate will yield the amount of money they need to bring in. These taxes are calculated based on the assessed value of a property relative to the municipal average. This means that your property tax will increase if the value of your property increases at a greater rate than the average. If the value of your property goes up less than the average, the amount you’ll have to pay will decrease. Property values are conducted every four years by the Municipal Property Assessment Corporation (MPAC) to ensure that changes in property values are being assessed.
While some argue that property taxes are regressive, others argue that they are progressive. Some consider property taxes to be regressive due to the fact that they only take into account how the market adjusts and not ability to pay. On the other hand, some consider property taxes to be progressive as only those who can afford a home end up paying the tax. I was intrigued by this debate in particular because I have a hard time understanding the progressive side of the debate. Take landlords for example. Landlords pass along the cost of property tax indirectly to tenants through rent. Even if tenants don’t receive a direct bill to pay their property tax, the property tax is built into the rent they pay every month. So, even though they don’t own a home, they’re still paying a portion of this tax. Furthermore, some tenants choose to rent because they’re in the process of saving for a home, or because they need a temporary place to live– in these cases, how can a property tax be seen as progressive when people that can’t afford a home still have to pay some portion of the tax? Sure, I can see how the argument applies to homeowners, but because it’s not just homeowners paying the tax, I have a hard time seeing both sides of the debate.
