Comment by joshlemer | Hacker News Reader

Comment by joshlemer | Hacker News Reader

We need to end or put limits on the Primary Residence Capital Gains Tax Exemption which is uncapped in Canada, unlike the cap of 200k in USA. It is unfair to renters and it is leading to insane housing prices.

It is unfair to renters because renters do not have an equivalent 100%, completely unlimited tax-free investment vehicle. We have Tax-Free Savings Accounts, limited to ~$5k contribution per year, and we have RRSP's with max contributions scaled to income, but homeowners have access to all those things too, and they are limited. Homeowners can take advantage of TFSA, RRSP, and then shove all of their remaining savings into maxing out their home purchase and enjoy all of their gains completely tax free. Renters have to start paying capital gains at an inclusion rate of 50% once they max out TFSA/RRSP.

This system is completely unfair and places a higher tax burden on renters who are, on average, less wealthy than homeowners. It encourages us to spend more than we should be on housing just to get around taxes, and discourages investing in actual productive things like innovation/companies.

In exchange we get population mobility; without this tax break homeowners would be very reluctant to ever sell their house and move someplace else. Also, housing capital gain isn't completely tax free; we all pay increasing amounts of property tax as the value appreciates. Although those taxes are baked into rents so maybe that's a wash depending on one's point of view.

Policy is hard and unintended consequences are around every corner. For example, I could see an argument for changing the scheme to a special rebate. So you pay your capital gain tax when you sell your primary residence but then get it all refunded when you buy another one. But then this scheme would wind up dinging senior citizens with a massive tax hit just when they're trying to put together cash for some end-of-life care.

But they cap tax free gains in the states at 200k, do we see mobility barriers in that jurisdiction?

Also, I believe what you're describing does exist in the states in the form of a "1031 exchange".

You don't pay increasing property tax as the value appreciates. Property taxes on average increase with inflation, not with house prices. Only if your property appreciates more quickly than others do you end up paying more.

I think banning, or severely restricting, HELOCs is a better idea. Canada also doesn't have inheritance taxes or a wealth tax.

The problem with taxing primary residencies is that homeowners aren't usually selling their homes to exit the market, they're upgrading or downgrading.

What exact problem are you trying to solve? I can think of a lot that this would cause.

Analyze any specific tax policy deeply enough and you’ll find that there is no way to fix something that starts off as unnecessary and harmful.

The problem is that poorer people or renters generally are subsidizing richer people or homeowners generally. Depending on if your view is that Canadian governments are too big or too small, you'd say that renters are being unfairly overtaxed and should be given a break, or that homeowners are not paying their fair share and should be taxed more.

A lot of home owner occupant tax advantages were specifically introduced to disadvantage landlords. If you get rid of them, it may make the problem worse because there will be no way out of the rental trap. Separately, there are many tax laws that are written specifically to benefit landlords, and these disadvantage renters directly. The whole ‘fair share’ of taxes argument presumes that the aggrieved group would pay less if others paid more. This wholly unsupported. Government extracts what citizens will bear.

Well I guess in that framing, I as a renter am expressing that I am not willing to bear this tax burden, and so will be voting accordingly.

You should always vote for less taxes on yourself.

Voting for more taxes on other people does not reduce your taxes.

I would say that there are moral positions where you should vote for more taxes on yourself (and others like you), not less. Because always voting for less taxes for yourself is a zero sum game where everybody loses, since the government has to be funded somehow (and I prefer it to be done via taxes versus inflation, which is much more regressive).

1. Price inflation is almost unrelated to monetary inflation.

https://fred.stlouisfed.org/graph/?g=O2ZH

2. Tax collection does not change a governments ability or willingness to incur debt.

3. Government spending may not be related to ‘needs’ of the citizens.

It’s just a collection of organizations and employees. They get promoted based on spending. Effectiveness is impossible to measure.

1. Sort of - the connector between the two is fiscal policy. We had tight fiscal policy in 2008 - that's why we saw no/muted general inflation after the crisis. We had comparatively loose fiscal in 2020 - hence the inflation now - it's not explained solely by supply chain problems and demand shifts from services to goods (though that's also a significant part of it).

Monetary inflation builds the potential for price/goods/CPI inflation - whether than potential is realized depends on fiscal policy and the supply response (more redistribution => more inflation - if productive capacity can't catch up, or if we limit supply - for example ESG / anti-oil stance).

2. Governments employ debt because of the political price of raising taxes. Issuing debt is basically taxing savers via inflation over the medium term - it's more "invisible", since the government will eventually have to devalue or default on its debt in real terms (the U.S. has done it twice in the last century - in 1934 and 1971, and it's possible that a third one is coming in the next decade. It's a little trickier since the currency is no longer gold backed, but it's de-facto oil-backed. If oil goes to $10K / barrel (hypothetically), that's as good as US defaulting on its debt as far as foreign creditors are concerned).

3. True, though there are transparency measures that monitor government spending and we have rough measures of effectiveness. Government is to people what the FED is to banks - the provider of needs of last resort. It might not give you the best service or work efficiently, but it will be there when everything else goes bankrupt or refuses to work. There are things that are unprofitable and unenviable to do in a capitalist system - and we rely on the government to do them.

1. Yes, broad redistribution of money (demand) and poor productivity growth (supply) creates price inflation. ‘Fiscal Policy’ seems like a meaningless term, so I can’t comment. But you know what is both designed to redistribute money and massively hampers productivity? Taxes.

2. You’re assuming that the budget is constant. It is not. Governments employ debt because they can. Governments tax because they can. If anything, the relationship is the opposite of the way you state it. Taxation allows them to take on more debt. Debt forces them to increase taxation.

3. Good theory. It is what I would have believed before spending over a decade in the bureaucracy. It’s neither right nor wrong, but irrelevant to the actual functioning of the system.

> The whole ‘fair share’ of taxes argument presumes that the aggrieved group would pay less if others paid more.

I don't think it does presume that. I can want another group to pay their fair share of taxes without necessarily wanting my own taxes lowered.

This is terrible, people would just never sell their homes.

Real estate investors have to pay capital gains on properties they sell, do they never sell their properties?

That's not comparable. RE investors are buying with the intention of selling and realizing an after-tax profit. For most individual homeowners if they're selling, it's to buy another property. Say you own a $1M home, and when you sell you're going to face $100k in taxes based on the gains to date. Now if you're considering moving you can only afford a $900k home instead. That would present a disincentive to moving.

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