NDP School Tax

Open Letter to David Eby

By on 11/08/2018

Dear Mr. Eby,

I am not sure what upsets me more: the “school tax” that you covertly introduced in your government’s last budget (and conveniently omitted in your election platform) or the fact that you were too afraid to face your constituents this week in the town hall meeting that you had planned. The idea that there were going to be too many “hostile” people present  (seniors et. al.) is not a reason to fret over your safety; rather it is an indication of how many voters in your riding and beyond are upset about this tax and wish to hold you accountable for it. If the crowd swells over this—or any—issue, then all the more reason for you to show up to explain your decision and hear what they people who elected you have to say about it!

As a lawyer, an MLA, and the former head of the head of the B.C. Civil Liberties Association, you should be ashamed of your cowardly disrespect for the voice of democracy and the desire for a group of citizens to express their objection to a decision that is being unwillingly imposed upon them. I can only imagine the outrage that you and your dogmatic supporters would have expressed had Kinder Morgan similarly cancelled a Town Hall meeting designed to discuss the proposed pipeline in BC!

But let me get to the heart of the matter: your school tax is not only deceitful and unfair, it is downright flawed. I am no longer employed as a professional economist, but I do have a degree in the field and I spent the first several years of my career working in tax policy (first for Jack Mintz at the University of Toronto’s International Centre for Tax Studies and then for Paul Martin at the Department of Finance in Ottawa). From this experience I can point out the following flaws with your policy.

First—and to understand this you don’t need a degree in economics—taxing savings is the worst of all taxes. In effect it leads to the triple taxation of a hard-earned dollar: first when it is earned, then while it is being saved, and finally when it is used to consume. Savings should be encouraged, not punished. Moreover, when the value of one’s savings declines in the course of the business cycle his financial position worsens, but he will still incur a tax, which only makes him poorer. The “school tax” proposal is also highly "inefficient" in that it distorts capital allocation by taxing savings that goes into one’s home as opposed to savings that goes into one’s bank account or investment portfolio. This is just bad policy.

Second, you are taxing unrealized gains. I have heard you liken this tax to a levy on homeowners who have “won the lottery.” This is absurd. You can’t tax a windfall until it is collected. I bought my home several years ago and, yes, it is worth more today. But I intend to live in it for many more years and who knows what it will be worth when I sell it. If Vancouver’s real estate market is indeed a bubble, which many think it is, then there is a good chance that my home will be worth much less than it is today. How is this a windfall? And what would happen to those who might even lose money on their home, or end up owing more to a bank than it is worth? Would you refund the “windfall tax” that they have been forced to pay over the years? Your policy, in fact, would only accentuate their pain as they would be levied the tax even if they are underwater on what they paid. Are there no lesson to be learned from the U.S housing crisis?

Third, why $3 mln? What analysis did you do to determine that this is the level at which people are “rich” and able to pay? This tells you nothing about anyone’s financial situation. Many seniors are retirees bought homes years ago that have appreciated, but they do not have a few spare thousand dollars lying around to pay your tax. Many others have taken out large mortgages to finance their dream of buying a home for their family and with interest rates rising—along with the overall cost of living (including, thanks to the NDP, gas!)—an increase in their taxes is the last thing they can afford.

Finally, I ask: who is in a better financial situation, the person who bought a $3.5 mln home with a $2.5 mln mortgage or the person who owns a $2.5 mln home free and clear? The former is more leveraged (and maybe even more foolish), but it is the latter who is clearly “richer.” Your tax is completely arbitrary and takes no account of such important discrepancies. Instead, it has the potential to accentuate pain and add insult to injury for those who may have made bad financial choices. 

With so many flaws in this proposed tax I can only assume that its goals are political rather than economic. Is this about “Robin Hood” economics, class warfare, or pitching “the haves” against the “have nots?” If so, you should be ashamed of such tactics. The world is already polarized enough (look south across the border!). What we need now is a unifying voice, not more balkanizing rhetoric that fuels anger, suspicion, resentment, and envy. 

Or perhaps this is about trying to create more affordable housing in Vancouver? In that case, it is equally flawed. I don’t believe that the provincial government can effectively solve a problem that has been caused by absurdly low interest rates, excessive immigration, and the global flows of capital. For that matter, I don’t know of any government—except for the Soviet Union—that has ever been able to guarantee “affordable housing” for all its citizens. This is pure socialist utopia, unhinged from any economic reality and debunked by the judgement of history. As we will surely see, this tax is only going to foster the problem, not resolve it. For all the reasons outlined above, it is going to make many people worse off and may in fact incent, if not force, them to sell their homes. And who will be picking up the pieces? Foreign speculators and absentee owners, of course!

All of this is bound to happen if you do not direct your efforts at solving the real problem with dishonest "flippers" and developers. You should start by cracking down on these scoundrels rather than blindly going after honest, hard-working, tax-paying residents in your own riding. I realize that there are some, in fact many, Point Grey homeowners who don't fit this description (they aren't even residents, let alone honest); but in that case you should design this school tax so that it is deductible for anyone who files income taxes in BC. That way, at least, you will be nailing those who are causing affordability problems in our province, taking advantage of the system, and not paying into it. But, as it is currently designed, your  approach is akin to a surgeon walking into the operating room holding a sledge hammer.

Let me make one last thing perfectly clear: I am as tired as anyone about what has been happening to the cost of living and housing prices in BC. I am sick of hearing about it in the media, talking about it with friends, and debating it with politicians. Yet, as a homeowner on Vancouver’s Westside, you make me out to be—at best—a “lottery winner” and—at  worst—a bandit, when my only "crime" was to do what everyone in this country dreams of doing: buying a home for my family.

You may not understand this but I feel more like a victim of what has happened than a beneficiary. I have absolutely no intention of selling my home to crystalize my “windfall”, and if I did I would still need a place to live for my family in this city (or would you rather I pack up and take my tax dollars elsewhere?). Furthermore, while I sit on these “paper gains” I have seen my community gutted. Six homes on my block are empty! Corrupt realtors regularly stalk my home and neighborhood. My taxes are going up to fund services that foreigners are using at almost no cost. My children will not be able to afford homes in this city. And yet my government now vilifies me for a problem that I cannot control, did not create, and would like resolved.

As my MLA and representative in government I look forward to hearing you address the concerns I have expressed in this letter; I look forward even more to the next provincial election!


Ben Cherniavsky