Tax Reform Committee's shoddy work

Outside economists reviewing the committee's work to date say HRM tax reform is "stupid," "garbage" and "a joke."

Halifax council was scheduled Tuesday to discuss "tax reform," which is the attempt on some councillors' part to switch from the time-honoured system of assessment-based property taxes to a "service-based" system that would charge residents receiving similar city services the same fee, regardless of the value of the property being serviced.

Specifically, the Tax Reform Committee is asking for a confidence vote to continue its work. But because councillor Steve Streatch was at a conference on cranberries (really!), the discussion was rescheduled until September, by which time the committee's full report should be completed anyway.

Asking for confidence votes before there's actually something to vote on is typical shell-game politics at council: "Oh, we just want your support in concept; you can vote against this when the details come forward," they say at the time of the confidence vote. But then when the details come forward, it's "We've put so much work into this, and council has already voted in support of it, so you can't vote against it now."

The committee's work is similarly an attempt to dishonestly pull the wool over citizens' eyes or, more charitably, is an honest reflection of shoddy thinking by the committee. That, anyway, is the consensus view of three economists who have reviewed the committee's work to date.

"Don't call it 'disturbing'; call it 'stupid,' because that's what it is," Lars Osberg tells me when I use the former term. Osberg has been in the economics department at Dalhousie for 31 years, and is co-author of a textbook with none other than Ben Bernake, chair of the US Federal Reserve bank.

"In the short run, [service-based taxation] is bad for poor people," says Osberg---because it will shift the tax burden off high-end properties and onto lower valued houses. "In the long run, it's bad for rich people too, because suddenly there's downward pressure on the quality of public services. Everyone ends up worse for it."

Osberg says with a service-based taxation system, the public will demand a level of services only to the level affordable by the median wealth of the public---"it's a great way to mobilize taxpayers to demand fewer services," he says. "And that's not what you want to do when you're trying to get businesses and people to move to town."

Mike Bradfield, a retired Dal econ prof who spent his 40-year career studying regional development issues, agrees with Osberg's critique, and rips to shreds the committee's numbers. In particular, says Bradfield, the committee has a moving definition of "equity," and one that has no reflection in the data supposedly collected.

He also faults the much ballyhooed "fact" that there's only a 37 percent correlation between property values and income.

"I think it's garbage---that's a technical term in economics," Bradfield says. "Not to present, in an appendix at least, the actual data source they use, the actual equation they use to estimate the statistical measure is slacking---I can't think of a better term at the time---because one would want to know what variables they put in to make that test, and what they're allowing for."

Bradfield says the committee confuses "income" and "wealth," perhaps with the intention of purposely deceiving the public. For most people, their largest single asset is their home, which is leveraged to put children through school, to plan for retirement, to start businesses. He cites his own situation---retired on a pension, therefore with little income, but quite comfortable, in part because he owns a nice house that's paid for.

"So you've got to know, when they did their regression estimation, did they have a variable in there for age?" he asks. "Simply to quote 37 percent is a non-starter."

"Their 'statistical analysis' is a joke," concurs Mathieu Dufour, a Dalhousie economist who studies international finance and development.

"What they report is meaningless, and even then the stats they choose to use are dubious," Dufour says of the committee's work. "I've taught econometrics and I am not sure I would have accepted such an analysis."

Dufour sends me a detailed commentary on the committee's report (see thecoast.ca/bites) and ends by echoing the other economists: "Let's just say that I am neither impressed by the content of the proposal nor its form."

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