Mobility Needs, Rights and Privileges Pt 3.

Progressive forms of taxation reflect Maslow’s scale. Graduated rates of income tax, for instance, take a greater percentage of incomes earned at higher levels after basic rates are collected at lower rates. Sales taxes are less progressive but are consumption based. Excise and sin taxes, while at times seeming unfair, are largely based on choice and in capturing some form of user-based fees. Property taxes are somewhere in the middle since they are based on the value of an asset, rather than being based on impact or purely based income since the value of an asset can increase considerably giving someone a high paper wealth, if not a high income. In other words, taxes try to subsidize our basic human needs while placing higher taxes on luxury items. This seems fair unless one takes a ‘consumption view’ of basic services as we often hear argued in America, that the wealthy don’t consume any greater share of basic services.

So governments appropriately use income taxes to build systems and offer services that are used by all together, cooperatively and without any greater proportional use based on income and that offer a general benefit to all citizens. In Ontario, we all contribute towards a public health care system, for instance. We share the costs of policing rural areas of the Province and provincial highways. Natural Resources, parks and other ‘commons’ in which we all share enjoyment. It is important to distinguish between paying for infrastructure, and paying for the use of the infrastructure which helps to ensure the efficient use of that asset.

In Ontario, local property taxes are a significant part of the transportation equation since Canada lacks a national transportation vision and leaves the transportation policy and funding space largely vacant for Provinces and their incorporated municipalities. Since property taxes and City budgets are highly regulated, cities have little ability to apply rational taxes to transportation. The value of a property may change based on the amount of parking spaces but it doesn’t change based on how many of those spaces are used. Since everyone in a City benefits from a transportation system, some sharing of the costs of infrastructure regardless of the amount of direct use, is appropriate. We all eat food and the highest and best use of roads, that carries the most benefit, is for food trucks bringing goods to market, notwithstanding the unallocated external costs which form a positive subsidy for food pricing.

A purely value-based taxation system however, doesn’t do anything to assess or allocate an appropriate price or cost of behaviour. The blunt pricing of property and land-use impacts are compounded by minimum requirements for parking which have had the unintended consequence of creating poor allocation of spaces and a perverse subsidy for ‘free’ parking, road use and inefficient land-use patterns. A single-family home in a dense urban environment thus costs much less to provide services to but because it is close to amenities and surrounded by land of higher value, subject to greater zoning-speculation and the organic forces of cities, highly subject to market fluctuation and to being unaffordable except for redevelopment or for parsing into rentable spaces.

One can argue that gas taxes are more progressive than other taxes since they are more related to use. However, the gas tax is still somewhat regressive in that it is based on both choice and behaviour while being effected by fuel efficiency and vehicle maintenance. In addition, the relationship between the payment of the tax, the use of the good, its impact and the marginal cost/benefit both real and perceived and the allocation of tax revenues are very opaque and blunt. The tax is paid at the point of consumption and not at the point of use so payment and consumption is largely unrelated and compounded by use of internet banking and gas cards and mystery/confusion about which government gets what revenues to pay for which infrastructure and services. In Canada, the Federal government collects about $6.6B from Gas related taxes and the combined Provincial revenue is $8B not including provincial sales taxes which could be substantial based on individual provinces. A few Cities add a local sales tax, presumably dedicated to transit and transportation. (Vancouver, Victoria and Montreal) http://en.wikipedia.org/wiki/Motor_fuel_taxes_in_Canada

Since pricing and revenue and funding of infrastructure are all so unrelated to each other in Canada, while being based on consumption, pricing changes have almost no impact on use or demand, other than those naturally felt due to the laws of demand, that as price increases, demand decreases. The relationship for gas is fairly inelastic so that there is very little drop in demand as price increases. This is in part due to lack of alternative modes of transportation that result from a poor legacy zoning/pricing policies but also due to the lack of choice provided by such poor pricing signals.

In Canada we use fare box revenues to fund public transit by a higher proportion than most other developed nations if not all. (subject to research, later editing.) We fund infrastructure through a Federal-Municipal grant agreement, through City capital budgets and debt financing, and through provincial infrastructure programs. These are among the lowest share programs and most reliant on property taxes as any in most other developed nations.

This results in a large portion of operating costs being funded by an incremental, per-trip, use-based price and resultant pricing signal for public transport, notwithstanding the availability of transit passes (though those are increasingly being used for revenue rather than for user-realized savings per-trip.) The resulting per-trip or annual pricing signal is much sharper than those of gas taxes. One pays then rides immediately instead of filling a gas tank that can be used for between 250 and 800 kilometres for trips made between 1 to 3 days and 30 or 45 days.

Most transit users, particularly of low-income, likely know exactly how much they spend on transit. Based on my own experience, I often have no idea how much I’m spending on my car though when I do work it out, I often include a per-kilometre cost, which I’m sure not many transit users can calculate. These different pricing signals make establishing understanding in transportation costs, a difficult prospect. Most people don’t know how much they pay or conversely, how much government takes-in, spends and fewer still know the external costs of their choices.

As we start to move beyond the basic construction and maintenance of infrastructure, we get into more complex arrangements and assumptions (as is natural to macro-economic discussions) and we attempt to move beyond specific, personal, anecdotal or anticipated outcomes that social science models have difficulty capturing. Often the result is unintended – as is the case with our current transportation system and he way we’ve priced it. Flat Water rates have been proven to be inefficient in regulating demand. The users subconscious thinking is that I’ve already paid for it, so I may as well use it. That system resulted in perverse subsidies, with homeowners maintaining a pool subsidized by those who’s homes have one bathroom. While we should all pay for the provision of infrastructure, in accordance with our means, we should not all pay the same amount for the use of the good that is conveyed by the infrastructure. Hence the move to Water metering to reduce system use and gain capacity.

Ontario has also recently moved towards demand-based pricing for Hydro and while this move has not been without some degree of controversy and public upset, it has meant that discussions of crises and rolling brown-outs has largely subsided in Ontario. The pricing system has worked to better allocate demand based on the cost/price of supply.

We haven’t yet gotten there with roads. I’ll try to get there in the next blog, as well as discussing the external impacts and benefits whose pricing is completely perverse in relation to the desired outcome and the efficient use of assets and capacity.


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