Property vs sales taxes: which is the more efficient way of raising money for transit improvements?

SEATTLE (NEWS1130) – When it comes to paying for transportation improvements, would you rather see the sales tax jump or be dinged with a property tax hike?

Seattle’s mayor is pitching the latter in a bid to raise $900 million to pay for transportation projects around the Emerald City. The plan is for a nine-year levy to raise money to fund everything from bike lanes to sidewalk improvements and dedicated bus lanes.

As far as efficiency goes, the property tax hike is the clear-cut winner, says UBC economist Dr. Joshua Gottlieb.

He doesn’t take sides, but calls the property tax hike more efficient.

“The efficiency cost of a tax depends on how much it changes their behaviour. I think about efficiency as avoiding distorting peoples’ behaviour. So, you want to impose the taxes that raise whatever revenue you need with the smallest distortion to people’s decisions about what to buy and how much to buy.”

He says with a property tax increase, you know what you’re going to get without any variables.

“Sales taxes obviously change your decisions about what to buy because you see that the price is higher. Property taxes, on the other hand, are less costly in that regard. They’re less inefficient. Because the house is there, the property is there, whether the tax rate is one per cent, two per cent or three per cent,” says Gottlieb.

He believes the sales tax model of raising money is a lot less efficient.

“From an economist perspective, the inefficiency of a sales tax comes about because it changes the amount you’re going to spend. A higher sales tax discourages you from buying things that would otherwise be worth having, otherwise be valuable for you or your family.”

Speaking for the Mayors’ Council, Port Coquitlam Mayor Greg Moore says they considered the property tax route before opting for the current model.

“One thing that the sales tax does is it collects revenue from people outside the region as well,” says Moore.

“Ten per cent of the overall revenue comes from whether you’re coming from the Fraser Valley or you’re a tourist to help pay for the transportation system. A property tax system doesn’t do that.”

Moore says a property tax hike would also have a larger impact on a single-family home.

You can weigh in on the mail-in vote on paying for transit and transportation improvements by joining our exclusive News1130/PlaceSpeak conversation.