Quote:
Originally Posted by Hakkaboy
Capital gains is a reduced tax rate on gains. The keyword is gains. If the gain is only $1, you pay 25 cents. If the gain is 0, then you pay 0. If you sell your house for less than what you bought it for, then that should be written off against your other investment income (if any).
Now, what are the 3 key reasons that people sell their principle homes?
a) Upsize
b) Downsize (including being forced due to financial reasons)
c) Move somewhere else
In what world will someone hold out and not sell due to a capital gains tax that will work out to a similar normal income tax rate if they are in the a, b, or c group?
And now, the last point, regarding the gap in upsizing. Yes, capital gains will erode and give you less buying power for your next home. But guess what, since this will apply to EVERYBODY, then there will be less stupid money to buy the next house. You are all assuming that prices will stay the same or keep rising, but fail to realize that this measure should bring prices down for everybody, including those who will be buying their first homes. It's basic economics, as you said. Less money available to be spent, housing prices go down.
This reminds me of the argument for higher minimum wages. "This city is to expensive to live in, let's raise minimum wage by 40%." Well, if you raise minimum wage, then everything goes up since labour will go up and so will operating costs for almost all businesses. Then it just makes everything more expensive again will now affect everyone and you are in a endless cycle of inflation and fixes to it causing more inflation.
To me the solution to the "affordability crisis" isn't by giving everybody more money. It's the opposite.
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Taxes work in your theory if there's an abundant supply of the target good and you want to discourage people from consuming the good. The problem we have is there ISN'T an abundant supply of it and it has not kept up with demand. If the supply isn't so tight then the runaway market wouldn't have run away in the first place and there would be no suggestion of taxes to control the market.
A blanket tax would just hike the the price across the board as people will keep raising the sell price to cover the loss on taxes. Your basic economics understanding is unfortunately wrong and you are assuming this is an elastic demand on a good that has no supply constraints. All you are doing is pricing people out with the tax as you raise the price floor. Time and time again it's shown that the "consumer" thus the buyer in this case, will be the one that bears the brunt of the tax.
There are other variables in play here such as some of the very stringent building codes that have been put into place in the last decade, plus the cost of labour and raw materials.
A targeted tax like the empty home's tax, and foreign buyers tax are theoretically much better initiatives to try and reign in the market as they target portions of the consumers instead of everyone. Yes there will be unintended casualties but most policies will. I'm not against a higher capital gains tax on 2nd and 3rd properties as it would again be a targeted tax that would not hurt regulars.
Minimum wage in a way is tax, as the gov't mandates the business to pay a certain amount for services instead of a market rate. Though, there aren't that many jobs that are REALLY minimum wage, and everytime they hike up the min wage everyone takes a hit.