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The B.C. government recently introduced a new property surtax that has proven controversial. Critics argue that it is unfair, regressive, and will force homeowners to sell. But the surtax is one of the best ways to fund public services. It is as economically efficient and fair as any tax increase can be.

This “school tax” costs residential property owners $200 per $100,000 of property value, but only on the part of the value above $3 million. It rises to $400 per $100,000 on the value above $4 million. The owner of a $4 million home pays $2,000 annually, or just one-twentieth of one per cent of the home’s value (0.05 %). Yet this tax has generated militant opposition.

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To fund public services, governments should seek the best way to raise revenue. Which taxes should we increase, and which should we lower? Economics provides a compelling answer: We should tax “economic rents.”

To understand this idea, consider an investor with $4 million. One option is to buy land. This would increase demand, and thus the price of land.