In its 2018 budget, B.C.'s provincial government proposed to make property taxation progressive: the tax rate would increase along with property value. Current practice simply multiplies the property value with a uniform "mill rate." Starting in 2019, properties valued over $3 million will pay an extra 0.2% on the value exceeding $3 million, and a further 0.2% on the value exceeding $4million. Progressive taxation is used for income taxes already: as income rises, so do marginal rates. It is thus perhaps not surprising to see a move towards progressive taxation of wealth. However, the proposal by B.C.'s governing NDP has created vociferous local protest. The Vancouver Sun reported Tax on high-value homes stirs protest, security concerns on May 2, 2018, and the Globe and Mail reported Residents sound off over NDP's tax on expensive homes in B.C. on May 28, 2018. Some residents of affluent westside neighbourhoods are protesting loudly that they cannot afford the extra tax and that the tax amounts to an expropriation of assets.

Opposition against the new tax—with the extra revenue earmarked for expanding funding of B.C.'s ailing public school system—is largely misplaced. Taxation based on "ability to pay" pervades our tax system as a fundamental principle. The Atkinson-Stiglitz theorem in public economics, according to which capital taxation is not needed if income can be taxed non-linearly, depends on a number of crucial assumptions that are not fulfilled in practice. Wealth is not only generated from high income. In fact, the large inflow of capital into one jurisdiction from another, without matching income locally, provides a very strong rationale to set aside the Atkinson-Stiglitz theorem in favour of progressive property taxation. Simply put, progressive property taxation brings greater fairnes to the tax system because wealth and income are not perfectly correlated. Claims to the contrary that the tax is "unfair" or even a "confiscatory wealth tax" (as columnist Gordon Gibson called it) are baseless. Homeowners who have seen their property values double or triple in just a few years are looking at an enormous capital gain windfall when they sell their homes. Sharing a little bit of this bonanza with the less affluent in this province is neither unfair nor confiscatory (unless you think that all taxes are confiscatory).

BC already has a progressive structure for the Property Transfer Tax. It is difficult to understand why progressiveness is not acceptable for the Property Tax, when little or no opposition was heard when the progressive structure for the Property Transfer Tax was introduced. The protests thus appear as insincere and politically motivated. The additional tax looks far from outrageous: a home valued at $4 million would pay an additional $2,000 per year. This is roughly what high-income earners paid more when income taxes were raised by 2.1%-points on incomes exceeding $150,000. Someone earning $250,000 would have seen a $2,100 increase in annual income taxes.

The proposed tax has measures in place to mitigate situations where a house-rich owner has low income, such as seniors and retirees who live on a fixed income but have seen the value of their properties skyrocket in recent years. Owners 55 years or older, surviving spouses of any age, and persons with disabilities are all allowed to participate in the province's Property Tax Deferral Program, which allows owners to defer taxes until the property is sold. Most low-income earners do not need to lose any sleep over the addtional tax—most likely, further capital gains over the next years will more than compensate these owners.

My SFU colleague Rhys Kesselman put it succinctly in his April 5, 2018 op-ed in the Vancouver Sun What is this new, radical, confiscatory B.C. tax?: B.C.'s modest increase in property taxation pales in comparison to much harsher taxes on housing wealth right across our border. He writes: "Almost every larger U.S. city has property-tax rates ranging from double to 10 times the all-in rates for homes in Vancouver." Even across Canada, Vancouver's property taxes don't look outrageous. A report from Altus Group compares major cities across Canada, and this makes Vancouver look cheap in comparison: see the graph below. Of course, Vancouver's high tax base implies a lower mill rate. However, Vancouver's house price would need to be 4.2 times higher than in Ottawa to make the Ottawa tax rate comparable to Vancouver's. Or let's compare Greater Vancouver with Greater Toronto, where reported home prices in April 2018 were $1.0920 million and $0.7663 million, respectively. At the 2017 property tax rates, the average property tax bill in Toronto would have been $5,073 compared to Vancouver's $2,785.

Note that the Altus Group comparison makes use of averaged tax payments rather than simple marginal rates, because actual tax payments are also influenced by tax reductions such as B.C.'s Home Owner Grant.

A progressive property tax has long been overdue to complement the progressivity of the income tax system in Canada. But do not take just my word for it. My eminent Nobel-Prize-winning colleague Joseph Stiglitz (the very co-author of the Atkinson-Stiglitz theorem) put it as follows in a November 2015 interview with The Tyee (Joseph Stiglitz on Canada's Housing Inequality: "It's Very Disturbing"). Commeinting on the affordability crisis in Vancouver, Stiglitz said:

[...] I would [suggest] a very progressive tax on property. If you have a $50-million apartment, the property tax on it should be very large. Some of the revenues could go to help subsidize lower-income people to live in the city. [...] We've helped fuel housing bubbles, creating more inequality. Those who get access to credit, usually those who already have wealth, get more and more wealth. This is one of the main sources of wealth inequality creation.

Tax hikes are never popular, and tax hikes that channel good revenue into bad expenses deserve scrutiny. However, B.C.'s public school system is badly funded and needs more cash. Performance metrics such as K-12 expenditures as a share of provincial GDP are low compared to other provinces. This is not simply B.C. being more education-efficient than other provinces. Anyone even vaguely familiar with the state of our public school system can observe first-hand that there are significant operational problems and program delivery shortages across the province. Taking a bit of wealth from those who can afford it and putting it into the education of our children is a sensible investment into the future of the province. There are policy areas where B.C.'s NDP government deserves legitimate criticism, but neither progressive property taxation nor improving the funding of public schools are among them.