The Absurdity of Land Transfer Taxes
Facing budget problems, cities of course move towards high or never taxes.
Yet, not all taxes are the same.
When it comes to cities, a land transfer tax boggles the mind. A tax should ideally apply to all citizenry in an 'equal' manner as 'all' citizens benefit as a whole. There are exceptions of course. For example, we have progressive income taxation because richer people can swallow a greater cost than poorer people can.
To show the ridiculousness of this tax, let's look at other municipal taxes:
Property TaxProperty taxes is the most common tax. You live in a particular community, you pay for the common elements of that community, such as roads, water, transit, public health... All residents pay this fee, whether direct as a home owner would, or indirectly as a renter would via their land lord.
Sales TaxSales taxes can also be used by municipal governments. They target a broad range of people and collect general revenues. Most things you do or purchase are going to have a cost to them and thus will have sales tax. So it targets the general population and uses the funds for general use of the community.
Income TaxSome municipalities, like New York city even levy an income tax. Again, this targets everyone, while typically reducing the cost on the poor via a reduced rate as this is a social goal to have less of an impact on the poor. Something many people could agree with.
Development ChargesMany municipalities use development charges. Essentially, when there is new construction, a tax is charged to provide the extra infrastructure needed to service this new development. This makes a lot of sense. A new housing community will needs new roads, pipes, electricity, schools, hospitals... It basically charges for the services for those benefiting from moving into the area.
Land Transfer TaxesNow, we get to land transfer taxes. These taxes only TARGET people who are moving.
They are not like development charges which account for new infrastructure.
These are not like property taxes which account for all the community.
They simply target new people in the neighborhood even though they don't add any new population or needs on the community.
Land transfer taxes should be purely an administrative tax meant to cover the cost of administrating a change in ownership.
Instead, they are used by governments too scared to increase property taxes on their current residents to rightfully pay for general community services or too scared to increase development charges to properly account for new infrastructure.
And what happens when homes sales start to drop, you now have a funding deficit that used to be fed off the land transfer tax.
Municipalities should reject land transfer taxes in favor of general property tax increases and increased development charges to cover the infrastructure costs of new developments.