(this is an extension of the Kingston Tax Rates page)
Tax-ratio fallacies are the first and greatest refuge of the Tax Whiner.
But what’s wrong with tax-ratio arguments?
TLDR: they’re vanity metrics.
We get jiggy with the logic below.
Why tax-ratio arguments are fallacies
So you’re chatting with somebody who has a compelling statistic. The city has higher taxes per person than another place, for instance, or a higher average amount paid per income, or… well, it could be anything, really. Taxes versus square kilometre of territory. Taxes per number of dwellings. Taxes per total number of daschunds. Taxes per average height of a citizen.
Ultimately, tax ratio arguments, “our taxes are the highest or lowest per ______________”, are kind of like IQ tests. If you have a great score, you can feel really good about it, and it’s fun to brag about at parties, but for any practical purposes, it’s trivia.
Explaining why it’s trivia takes a bit of math and a bit of civics and a certain amount of “if A, then B” logical thought. Oh, and just a smidge of Greek mythology. Buckle up!
Let’s start with a question of control.
There’s one element under municipal control, as far as taxes go: what they charge. Their rate.
Where does that rate come from?
Here’s the math part; it’s a pretty simple two-part formula, but worth repeating:
Part one:
| municipal services | x | cost | = | revenue required |
Part two:
| revenue required | / | taxable assets in your territory | = | tax rate |
This is grossly oversimplified and doesn’t take into account a lot of things, but it’s a napkin sketch of how taxes happen.
So why is this important to know?
The key thing is to look at this using common sense.
To manage a situation and to effect change, you have to look at what is under your control.
In the municipal case, it’s “services”.
The outcome of the two-step equation is “tax rate.”
You can truncate this relationship to
| services | … | tax rate1 |
What isn’t in this equation?
Everything else.
It doesn’t account for population size*, or local income, or the number of weiner dogs in the territory.
*except to determine the scope of services it needs to provide above, but you knew that.
Why can’t it?
The better question is “how could it?”
It can’t, for a number of pretty common-sense reasons, chief among them this valuable bit of context:
Large municipalities require planning.
Municipal organizations are complex networks in charge of life-sustaining services, and planning happens (or should happen) on a scale of years to decades, not days to weeks.
Major infrastructure like water, roads, and waste needs to be planned and maintained. Large numbers of service groups like police, fire, garbage, and utilities need to be hired, trained, and managed. Parks and sporting infrastructure needs to be maintained. Finances have to be meticulously kept. Public transit needs to run. Tourists need to be attracted.
These aren’t “snap decision” kinds of areas, and when cities see disaster, it’s usually because somebody with a “runs like a business”2 mentality has tried to apply what is perfectly sound thinking for running a bait shack to running a municipality. The systems aren’t compatible.
So what happens when you try to apply “taxes as a percentage of average income” or other ratio-based arguments to a discussion about municipal taxes?
You’re introducing trivia to the conversation in the form of non-actionable information.
We’ll use “average tax paid, as a percentage of income” as a f’rinstance, but this applies to any ratio model, including square km, number of people who own ducks, total count of refrigerators – any datum that can provide a number to put on the right side while taxes are on the left.
So you’re talking to somebody that says “this town’s taxes are out of control! We have one of the highest average taxes paid, compared against income! Why, 5% of a citizen’s average income goes to taxes, and the average across the province is only 4.8%!”
To be fair, that legitimately sounds outrageous if you don’t think about it very much.
But let’s invest some thinkin’ time.
First assume good faith, and that the person in question is actually trying to have a helpful conversation and not just kvetching.
The key question becomes:
What, in this scenario, is in the municipality’s power to directly change?
They can’t increase local revenue (well, not directly*). Unlike the above equation, which starts with “services,” this is the ratio argument equation:
| average income | / | taxes paid | = | taxes paid per average income |
In the first equation, we started with “services”, which municipalities control. “Municipal services” is the starting point in a linear path to “tax rate.”
But here, there’s no municipal-adjustable equivalent. Even with the very best wishes and a spectacular wizard hat, municipal government can’t magically increase local revenue.*
They can adjust tax rates, but as we’ve shown above, tax rates are a direct derivative of services, and as the clear-eyed have noted, “services” represent a vast range of things that are more like a cruise ship than a unicycle – they take forethought, vision, and long-range planning to manage effectively. Radical changes to services to immediately slash tax rates generally read as “panic” and don’t end well, as a rule. “Income has fallen 0.5% so let’s not have police for three months” is not a great way to run things.
In the “average income” flavour of this argument, a good question to ask is “does the municipality charge income tax?” and if the answer is “no,” the follow-up question “so what does income have to do with our tax rate, exactly?” will usually flip the light switch.
*”Municipal government can’t increase local revenue” is actually not entirely true.
Municipalities make a huge difference in local revenue by making themselves attractive to new citizens, tourism, and employers. How do they do that?
By having great communities where people and businesses want to be, which requires fun things like good water, functioning sewers, police and fire, etc. These are “services,” and they’re what drive taxes. So if you want your tax-to-revenue ratio to improve – even though it’s a vanity metric – you should actually want to pay taxes for world-class services, to attract people and businesses, and improve revenue.
But they can’t directly affect total revenue, which is kind of the whole point.
Anyway, the above applies to any argument that relies on the forumula
| tax rate | / | [VARIABLE] | = | tax rate per [VARIABLE] |
whether it be average income, counting women named Barbara, total km of city streets, number of babies born per year, etc.
All right, sooooo…
So when you stake your whole argument on one of these ratios, you’re not actually complaining about taxes any more. You’re complaining about [VARIABLE].
And it’s all well and good to think that there aren’t enough daschunds in the city, or homes cost too much, or homes cost too little, or people don’t make enough money, but at that point you’re essentially saying [VARIABLE] is a problem, but you still think you’re upset about taxes, because you don’t understand how taxes work.
To put it another way…
The tax ratio fan can’t argue that the taxes aren’t fair (in Kingston’s case), because they are. That’s just math n’ geography. They’re upset about [VARIABLE], but they don’t really understand that [VARIABLE] is the problem… not the taxes.
So what’s the problem with these ratio arguments? They’re silly, but harmless. It’s just trivia, right?
Meh. One problem is that they get people who don’t have a firm grasp on math or civics all ginned up about something that doesn’t ultimately mean anything, which is a huge waste of energy and helps propagate a pervasive I-read-half-an-Ayn-Rand-novel “taxation is bad” fallacy that erodes a general understanding of civics. Shutting these things down helps foster a nuanced understanding of how society functions.
More practically, the ratio arguments also passively promote a model where municipalities should, say, continually adjust rates according to chicken count or total number of Dairy Queens or average income or people’s heights; they have the gloss of facts, but when you think about the facts of civics and the math underlying taxation, it’s a bonkers worldview to put forward.
Consider the kind of government you’d need to run to index crucial long-term service decisions based on the number of people named “Dave” in your catchment, which changes weekly (Daves come and go). But then somebody complains about the daschund ratio, and then the average height, and then, and then, and then…
If you don’t pay much attention, the ratio arguments are compelling, and next thing you know you’ve got a mayor who wants to “run things like a business” and ten years later you’re wondering how everything went to hell and why you’re on a boil water advisory.
So it’s worth time and energy to shut tax ratio arguments down as meaningless. Hey, I wrote this whole thing! Clearly I think it’s worthwhile.
So ratio presentations of taxation are useless?
No! They’re fun trivia, as mentioned above. If you’ve got, say, the lowest taxes paid per total number of swans in the city’s pond, you can put that on your website and the easily gulled will think you have low tax rates, regardless of what your tax rates actually are. You may have the highest tax rates and also the highest number of swans, but a sucker is born every minute.
The results can also derive some interesting ways to look at [VARIABLE], as long as it’s clear you’re on an investigation of [VARIABLE].
If you find Greek gods named “Zeus” are taxed more than anywhere else in the country, for instance, you may want to see if the Greek goddess Hera is working in your tax office.*
*That’s the Greek mythology, folks! Don’t forget to tip your waiter.
But tax rate is still the only rational metric of whether a city’s taxation is fair?
Yes. It’s pretty straightforward. Again, it takes a bit of math, some civics, and… well, honestly, you didn’t really need the Greek mythology. But it’s fairly linear after all.
Back to the Kingston Tax Rates page!
1. A good test of “is my municipal government doing okay?” is to inverse this relationship. If the tax rate is fair, relative to comparable other places, and the services are adequate, the city’s doing a good job. If the tax rate is out of step with other municipalities, or the services are dismal, the city’s doing a bad job. In Kingston’s case, the services seem good and the tax rate is fair (see previous page), so I deem the City do be doing okay. There are always things to improve, but taking to the ramparts about taxation is a non-starter and a waste of everyone’s time.
2. One more time… If somebody’s answer to “should government be run like a business?” is anything other than “no, that is insane, a business’ ideal model is to maximize benefits for a tiny number of owners or shareholders, and a government’s ideal model is to maximize benefit for everyone, which is literally the exact opposite, so while it’s fine to say governments should pursue efficiency or not be wasteful, business is a ludicrous model, governments should be run like very good governments, and you should feel bad for even asking that question”, you can safely ignore anything they have to say about government, civics, economics and politics. Send them to this page and if they call you a “snowflake” or a “Neo-Marxist,” tell them I said they owe you a quarter.