Restoring inheritance tax could raise education revenue

Almost 40 years ago, Ottawa quietly cancelled Canada's estate tax.

Few Canadians even knew about the tax. Those who did mostly belonged to a small number of wealthy families who were rich enough to pay it. With its cancellation in 1972, this tiny crowd was suddenly a lot richer.

U of T economist John Bossons calculated that ending the tax amounted to a windfall of about $12 billion ($62 billion in today's dollars) for Canada's wealthiest families.

The removal of the estate tax, which remains an obscure event in Canadian history, had momentous implications, depriving Ottawa of revenue and putting Canada on a path toward greater inequality.

With income and wealth increasingly concentrated at the top, Canada is now a highly unequal society, compared with our own history and international standards. In the past few decades, we have followed in the steps of the United States, which has the highest level of income inequality in the advanced world.

Extreme inequality is a powerful underlying factor behind political rancour in the United States, as Americans struggle over who will end up paying for the spiralling deficits caused by the fallout from the 2008 Wall Street crash.

To prevent the wealthy from slipping out the back door at settling-up time, the Obama administration is pushing hard to end George W. Bush's tax cuts for the rich and to save the U.S. estate tax, which many Republicans are hell-bent on repealing.

Meanwhile, despite massive deficits here too, the prospect of collecting more taxes from Canada's incredibly wealthy elite -- we now have 55 billionaires and thousands of multi-millionaires -- remains well off the political agenda.

One simple, rarely mentioned option would be to restore a variation of the tax that Ottawa quietly removed 40 years ago.

Strikingly, if Canada were to once again tax large inheritances -- the way just about every other advanced nation still does -- we could raise enough revenue to put $16,000 into an educational trust fund for every Canadian child on his or her 16th birthday.

Under this simple plan, developed by Osgoode Hall tax professor Neil Brooks, Canadians could inherit up to $1.5 million tax-free. Above that, a gradually rising tax would apply.

In 1990, Bob Rae promised an inheritance tax as part of his successful bid to become premier of Ontario. Although the promise had been a popular item in Rae's election platform, it was never implemented by his NDP government.

Some will protest that an inheritance tax picks on the wealthy. But the current situation could be characterized as picking on the non-wealthy. Regular income -- money earned on the job -- is taxed.

But there's no tax on money received through large inheritances. These windfalls aren't earned, but just dropped into the laps of a lucky few, requiring no effort or talent on their part, beyond choosing appropriate parents.

Warren Buffett has dubbed this the "ovarian lottery."

Buffett and fellow multibillionaire Bill Gates support the U.S. estate tax; some of Canada's billionaires might even support an inheritance tax here.

Suffice to say, however, there would also be resistance.

But then, nobody said taking on some of the most powerful people in the country -- in order to improve the education prospects of every young Canadian -- would be easy. Just that it would be worth doing.

Linda McQuaig is author of It's the Crude, Dude: War, Big Oil and the Fight for the Planet. This article was originally published in The Toronto Star.

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