Tuesday, July 07, 2015

Vancouver, Transit, and Taxes

Metro Vancouverites have voted overwhelmingly to reject an 0.5% increase in sales tax that would have been used to fund transit. If you missed it, CBC reporting on the story is here. The vote was not even close. The margin was, if memory serves, close to 2-1 against. I confess that I would have voted for this increase. But, what confused me is not that others voted differently than I do. I've said before, I'm used to being in the minority. I recognize that the vast majority of Canadians seem to think about public issues differently than I do and the fact that I happen to disagree with the majority is not a good enough reason to write a blog. Indeed, if that were my standard for blog writing, I'd be writing all the time :)

What is interesting about the Vancouver vote is how confusing it is. I remember being similarly confused when BC rejected the Harmonized Sales Tax and, by referendum, decided to keep the GST and PST, which means that BC residents pay tax on tax (something that would have been eliminated by the HST, thus ultimately saving British Columbians money). I found it confusing that in the name of rejecting a tax (the HST) British Columbians elected to actually pay more tax (PST + GST). What seems to be at issue here is the word "tax," the conception of what taxes are spent on and who spends them, and the results. I'll speculate that there is something else going on here as well and that something else is a failure on the part of pro-tax people to properly explain what taxes are, what they do, and why they can be a good thing. There is a certain degree of nuance in this argument (or, at least there should be, whether I meet that bar or not remains to be seen), so bear with me.

One thing that is confusing about the vote is that the proposed tax increase was very small ... very, very small: 0.5% increase on the PST. Here is what this change amounted to. Imagine you are buying a chocolate bar and the PST is 7% (BC's rate). The GST in BC is also operative, thanks to an earlier referendum so  we have a total sales tax rate of about 12%. That means that if you buy a chocolate bar for $1.00, you pay $1.12. Everyone who has ever bought a chocolate bar is familiar with this. PST and GST apply to some goods and not others. Necessary goods -- like groceries -- are not taxed. If this tax increase had passed, the price of the chocolate bar would have rise to $1.125, let's round up $1.13. That is it. You would have paid $0.005 extra per dollar that you spent on taxable items. In return for this, BC  would have gotten what everyone agrees are needed improvements and maintenance to its public transit system. In addition, this tax increase would have leveraged other funds that would have actually brought more money in than was being spent in local tax dollars. In short, for a small price, people would have gotten a good return and sustainability longer term for public transit in a rapidly growing city that really needs this transit.

What will be the result of the no vote? Well, it is hard to say. We should not exaggerate the effects of referenda vote (as I argued in a previous blog). However, the longer term prospects for public transit are not good. We can expect more crowded commutes into the city from outlying suburbs, more time absorbed for commuters as more people are on the road, an increased need for road maintenance. In short, this vote will not eliminate the need. Public transport is simply something that is needed. I just got back from a vacation in NY where I used public transit -- the subway -- and it was great. I've done the same thing in Toronto and Montreal. Transit is the ability to move people from one place to another. That is what you get for it. All cities need this ability because people need to move from their homes to their work or to shop or go to school or to play sports, etc. Thus, voting against maintaining transit will not eliminate the need for it and will simply push people to use alternatives (private transit), which comes with its own costs (particularly but not exclusively road maintenance). Thus, the situation in rejecting this tax is not "will you pay the tax or not?" but "when and why will you pay?" If you do not pay, you will not get the service. You can see why I am confused. I did not understand why people would vote against the GST so that they could pay tax on tax. I don't understand why people would vote against this minor tax so that they can make their lives more difficult -- and potentially more expensive -- in the future.

The tax rate is important here. It is not just that it is small but that it is so small that it will go unnoticed. The anti-tax people made it seem that each person was going to have to pay a new tax rate at the end of the year. Their web site is here. But that is not the case. In fact, with the rounding up and rounding down that we do when we pay for things now that the penny is defunct, it is doubtful that anyone would have noticed any increase at all in terms of their disposable income. I've said this before but a very small tax spread over a very large number of people can generate important revenues that we can use for important public goods that ultimately save money. Hence, health care is supported in this way and ultimately saves Canadians money.

The problem seems to be that there is an institutionalized group of tax opponents and that there is considerable public confusion about the use of tax dollars. Generally, both of these factors relate to increased alienation from the policy formulation process and from government. I listened, for instance, to one public transport advocate on CBC arguing that measures such as this should never be put to a vote anyway. The government should simply have made the "tough decision" and imposed the tax. This would, of course, allowed him to get what we he wanted (and, btw, me) but it would have been wrong. The issue not that people voted against a tax increase that was not really an increase for reasons that are deeply confusing and ultimately counterproductive. The issue is that it is difficult to make the case that the state is a good guardian of public funds. In the case of this  tax, a great deal of opposition to it seems to be related (at least according the web site I cited above) to antagonism to transit authorities. About that, I know nothing but it would not surprise me. In other words, people voted against the tax because they believed that any increase in  taxes was wasted money. The anti-tax people seem to have taken advantage of this belief.

Why would people believe this? In part, as I've also said before, I think it comes from a false set of beliefs about how things get done and the politics of public policy. Elections are rife with people telling other people that they can get something for nothing. I don't think the people who voted against a very small increase in taxes that would have gone unnoticed really are that cheap; nor do I think they oppose public transit. Nor do I believe that they just want to pay more down the road for the same product that they are getting now (aka, transit). I think their opposition to the tax was vested in a sense that the state is malfunctioning and that they will pay more taxes (even if that amount is small) and get nothing in return.

Let us consider the claim made by the anti-tax folks. The new tax will cost each taxpayer $258.00 year. This might be true. I don't know and I'd like to see the math, but let us assume, for the sake of argument, that it is true. This sounds like you will have to write a cheque for $258.00, of course, when you won't but there is something else to notice here as well. For the average middle class Canadian $258.00 over the span of a year, even if you had to pay it directly, is not a lot. It amounts to $5.00 (give or take) a week. There are Canadians for whom this is a serious amount of money and that in itself is a problem, but the average middle class Canadian will, I suspect, spend a great deal more on Tim Horton's coffee each week. If you live in Vancouver ... Starbucks will run up that tab even quicker. The total amount, in other words, might be something that is subject to debate in terms of who can pay what but ... it really is not big.

So, we are left with a question: are Vancouverites dumb? Are they so dumb that they would rather save a pittance now to pay more later; are they so dumb that they don't understand that the need to move people is a fundamental element of the modern city? Are they so dumb that they cannot recognize that their clogged commute in their cars is the result of a bad transit system? Of course not. Instead, what this vote highlights is the depths to which the public perception of government has fallen. Ordinary, reasonable people are not willing to trust the state with an $0.005/$1.00 tax increase. They can't believe the savings will make a difference to them because they are not that dumb. The real lesson, the real issue, then is a need to regenerate the state and get it working. Rather than trying to find a way to impose this tax increase in an anti-democratic way, the advocates of public transit -- myself included -- need to redouble their efforts. We need to show how a democratic and transparent state can work effectively. Until that happens, these kinds of votes will continue to happen.  
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