As Metro Vancouver residents prepare to vote on a new “congestion tax” to pay for transportation improvements, a central fact remains in fierce dispute: How much would the tax actually cost people?

The Mayors’ Council, which is heading up the “Yes” side, says the tax increase would cost the average household about $125 a year. But the Canadian Taxpayers Federation, which is advocating a “No” vote, pegs the bill at more than twice that: $258.

It’s hard to see how the two sides’ estimates could be so far apart, given everyone agrees on what the new tax actually is: a 0.5 per cent increase to the provincial sales tax within Metro Vancouver.

But it turns out the “Yes” and “No” sides are measuring two very different things.

The “Yes” side’s estimate looks just at how much extra sales tax will be paid directly by consumers.

In contrast, the “No” side’s figure estimates the total economic burden on households, assuming that sales taxes paid by businesses will just be passed on to consumers in the form of higher prices.

One of B.C.’s leading tax policy experts says both approaches have their problems.

If you're on a mobile device, please click here to see the calculator.

“The way the ‘No’ side has done it is definitely naive and wrong. … And the ‘Yes’ side is probably missing some [costs],” said Rhys Kesselman, an economics professor at Simon Fraser University. “No one gets the Nobel Prize here.”

Of the two approaches, the “No” side’s is the simplest.

In an email, Taxpayers spokesman Jordan Bateman explained that his group took what he called a conservative estimate of the total revenue from the tax -- $250 million — and divided that by the total number of households in Metro Vancouver (just under a million) to come up with $258 per household.

The Mayors’ Council argues a significant share of that $250 million will be paid by businesses, not residents, but Bateman said it’s safe to assume most taxes paid by local businesses will just be passed on to Metro Vancouver residents in the form of higher prices.

But Kesselman said that’s not a safe assumption at all.

Tax increases on firms are sometimes passed onto consumers, he said, but other times are simply absorbed as a cost of doing business.

Also, said Kesselman, even if businesses do pass on the full cost of the tax to consumers, not all of those consumers are in Metro Vancouver.

In an analysis comparing the PST and HST in 2011, Kesselman found about a third of the goods and services produced by B.C. companies were actually sold outside the province — so a third of any tax costs passed on to consumers were paid by those outside the province.

That figure would be even higher in this case, said Kesselman, as the congestion tax would only apply in Metro Vancouver and so a share of any costs passed on to consumers by local businesses would be paid by people in places like Kelowna and Abbotsford.

To calculate its $125 figure, the “Yes” side began with detailed data on household spending from Statistics Canada which breaks down, for different income groups, the average amount spent on various categories of goods and services.

It then tallied up all the spending that was subject to PST and calculated how much an extra 0.5 per cent tax on that amount would cost.

One advantage of the “Yes” side’s approach is that it makes it possible to estimate the tax that will be paid by people at different income levels, rather than just the single number provided by the “No” side.

So, for example, the “Yes” side estimates a household earning $37,500 would pay $70 a year on the congestion tax while one earning $87,500 would pay $116.

The biggest downside to the “Yes” side’s approach, said Kesselman, is that it only looks at the tax directly paid by consumers.

The “No” side may be exaggerating how much of the tax paid by businesses will be passed on to Metro Vancouver consumers, although it’s hard to come up with a precise estimate, Kesselman said.

The Mayors’ Council provided The Sun with a detailed breakdown of its methodology and data. The Sun used that data to produce an interactive calculator, at vancouversun.com, where you can plug in your own family’s income and see how much the “Yes” side estimates you’ll pay each year on the congestion tax.

One of the striking things about the calculator is that it illustrates how the congestion tax will hit poor families harder than rich ones.

For example, the calculator shows a household earning $20,000 will pay $53 a year on the congestion tax. All else being equal, one might expect a household earning ten times that — $200,000 — to pay ten times as much tax, or $530.

But, in fact, such a household would pay only half that amount: $266.

Sales taxes are like this, because poor families spend much more of their income each month than rich families, who tend to save more.

“This tax hits the people who can afford it the least,” wrote Bateman. “Sales taxes are regressive … Poorer people will contribute a higher percentage of their income to this tax than wealthier people.”

Jacob Fox, a planning analyst at TransLink who did the “Yes” side’s tax calculations, acknowledged the congestion tax is regressive.

But he said it’s significantly less regressive than other alternatives that were on the table, like a vehicle levy or regional carbon tax.

Kesselman also noted in an email that the regressive nature of sales taxes isn’t as bad as it might first appear, as the money wealthier families save usually gets spent eventually.

Finally, the “Yes” side argues that while the congestion tax has a definite cost, most residents will save money in the long run: paying less for gas because they get to work quicker, or less on parking and insurance as transit becomes more convenient.

“The end result is that you’ll have a net savings,” said Geoff Cross, senior manager for policy and analytics at TransLink.

Kesselman said it seems logical to him that reduced congestion on the roads could save drivers money.

Bateman, however, is skeptical the savings will be as substantial as the “Yes” side claims.

“They’ll say anything to get this tax through,” he wrote. “People know their individual situations a lot better than the mayors.”

cskelton@vancouversun.com

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