What is regressive taxation?

We have a great exchange here between the Mayor and city finance administration on why a flat tax is more regressive then an increase in property taxes.  The mayor is kind of arguing anecdotally that people who live in expensive homes, aren’t making the most amount of money.  It is true in some situations; Warren Buffet lives modestly in Omaha and the CEO of Costco lives in a simple bi-level house but statistically, people live in the biggest home they can afford. 

The boat and RV argument is a weird one for me because once you do there, you can’t really go stop at just boats and RVs.  Do you start to take into consideration the value of cars, golf clubs, baseball card collections or books.  I spend a lot of money on books and technology so should I pay more city taxes?

Our Mayor lives at the Willows which will pay more under a property tax increase than those living in Westview will.  Undoubtably he is hearing about it from his neighbours and his largely suburban electoral base who wants to pay less for roads.  It’s either that or he just doesn’t understand the concepts around basic taxation.  Take your pick.

Of course al valorem taxes are regressive because it isn’t based on income but it’s less regressive than a base tax which targets everyone equally regardless of income.  In Saskatoon’s case, it means that 85% of households would pay more under a flat tax and the wealthiest 15% would pay less.

2 thoughts on “What is regressive taxation?”

  1. Hey Jordon,

    As usual, I’m thrilled to see you speaking out on this issue. I thought I’d share some of the data I collected while trying (vainly) to convince my friend Tiffany to vote against this issue. Pardon the format, but I’m copying verbatim from a Facebook post:

    Yesterday, I posted a comment about my concerns (and activist leanings) with respect to the proposed per-household flat tax for #yxe roads. Shortly after that, I was asked to support my claims. I posted them in comments, but here is a cleaned-up version of the support information.

    First, a caveat: I am absolutely aware that there are provincial limitations on the methods the city can apply to taxation (or other forms of income generation). I would love to see a concerted lobbying effort from the mayors of the province to change this rule, since it hamstrings the cities inappropriately.

    I am not trying to simplify this problem: a progressive property tax is only a loose metric for road use and can be implemented as only a temporary measure in Saskatoon, since many of the underlying assumptions will change as our city grows according to the new integrated plan.

    However, a flat tax is unfair.

    Here’s some of the evidence:

    1) Saskatoon’s poor are predominantly in the West side core neighbourhoods. There’s a fairly comprehensive report here: http://www.saskatoonpoverty2possibility.ca/pdf/Saskatoon%20its%20People%20and%20Poverty%20Aug%202011.pdf

    2) Those people also have fewer vehicles per capita. The statistics are in the same report, but this is the relevant paragraph:

    “Access to transportation can have a significant impact on people’s ability to participate in community life, and to obtain important goods and services. Residents of the Westside core neighbourhoods tend to have more limited transportation options than other Saskatoon residents. In particular, car ownership per capita is lower in the core neighbourhoods than for the city as a whole (. 4 in the core neighbourhoods versus .76 in the city overall) [City of Saskatoon 2008]. Transportation limitations have been cited, for example, as a barrier to accessing good quality, affordable food [Station 20 West].”

    3) Seniors are generally situated closer to the middle of the city, with the downtown areas concentrating most of it. This trend is less defined, but follows a national trend. Here’s a map of Saskatoon with 65-and-older population numbers. Considering the geographic relationship between cost of housing in Saskatoon, poverty, and age, it’s fair to say that many of the core area seniors are fixed income. http://www12.statcan.gc.ca/census-recensement/2011/geo/map-carte/pdf/thematic/A_S/2011-98320-002-725-013-01-00-eng.pdf

    4) The relationship between income and commute length is well-documented nationally and internationally. Here’s a good example study: https://www.google.ca/url?sa=t&rct=j&q&esrc=s&source=web&cd=3&ved=0CDwQFjAC&url=http%3A%2F%2Fwww.cpb.nl%2Fsites%2Fdefault%2Ffiles%2Fpublicaties%2Fdownload%2Fcpb-discussion-paper-244-do-rich-households-live-farther-away-their-workplaces.pdf&ei=6voLUqbdPJT9yAG9x4Fg&usg=AFQjCNHSnQQazqdjLmGyIaozFP8LTG4z1g&sig2=AAPP-EnUQMSwAYxLd5027g&bvm=bv.50723672%2Cd.aWc&cad=rja

    Note that this has begun to change in some places, such as Toronto and Montreal, but not massively. The key to change is creating mixed-use locations in core neighbourhoods and making suburban driving less desirable. Our current integrated plan begins to address this to some extent.

    5) Around the world, income is a direct driver for vehicle ownership: http://www.usaee.org/USAEE2006/papers/dermotgately.pdf and http://citeseerx.ist.psu.edu/viewdoc/download?doi=

    6) There are numerous studies that show that public transportation in North America is not used as much in low density municipalities by wealthier people. I find this study compelling because it finds that public transportation use increases with income _until_ people have enough money to buy a car: http://eprints.whiterose.ac.uk/2034/1/ITS23_The_demand_for_public_transport_UPLOADABLE.pdf

    This is supported by this study (which you may not have access to without access to Elsevier. http://www.sciencedirect.com/science/article/pii/S0094119007000046 The abstract is fairly clear, though.

    I’ve been trying to track down the relationship between income and number of vehicles and it will require better economic skills than mine to clarify this with Canadian numbers. Here are some of the bits that I’ve figured out:

    1) Distance from the downtown core is positively correlated with travel emissions per household: https://www.cmhc-schl.gc.ca/publications/en/rh-pr/socio/socio050.pdf

    2) Given the map of Saskatoon income that I included above, it’s fair to assume that, as a trend, the wealthier people in Saskatoon are more likely to live farther from the downtown core. This is supported by a variety of similar cases in North America in cities of under 500,000.

    3) One can assume that emissions per household is mediated by vehicle size, commute distance, and number of vehicles per household, all of which have an impact on road wear.

    4) There is an intuitive link between owning multiple vehicles in a household and having more money: with less money, you’re less likely to be able to afford multiple vehicles both w.r.t. their purchase price and the ongoing cost of insuring, maintaining, and running them.

    Thus, wealthier people in Saskatoon are more likely to have more vehicles and travel more within the city while driving them. This leads to increased road usage which is not modeled well by a flat tax.

    Feel free to share this with anyone who wants to rationally discuss the issues!

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