Most reasonable people agree that some form of taxation is inevitable.But taxes are all about where, who and how much, and to which programsthe money will be allocated. Despite the fact that only two-to-three per cent of Canadian families would possibly be affected by the inheritance tax, criticism seemsmuch more widespread. But the 17 per cent tax would kick in only after the firstmillion dollars. Tax on a $1.5 million estate would be $85,000; $340,000on a $3 million inheritance in neither case a pittance, but not aninsufferable burden for the fortunate heir(s).
Estimates are that the inheritance tax would raise between $2 and $3billion per year. Taxes not collected in this manner from thewealthiest will have to be collected from the rest of us, thealternatives being cutting programs or running a deficit, as it wasdrilled into us more than ever during the recent campaign.
Arguments against the inheritance tax include:
- The capital gains tax replaced the inheritance tax in the 1970s:
The capital gains tax is an income tax on the gains accumulated only,and is aimed at the person who accrues these gains, not the heir. Theinheritance tax is aimed at the beneficiary of the inheritance. So,rather than a windfall of $3.0 million as in the example above, theinheritor has to survive with the paltry sum of slightly less than $2.7million.
Moreover, the capital gains tax is currently applied on only 50 per cent of thegain (it was 66 per cent until Paul Martin gave high income earners andinvestors a tax break in 2000). All of which means that at the presenttime, unearned investment income is taxed at half the effective rateas earned labour income, and money earned in the form of aninheritance is not taxed at all.
- Inheritance tax is double even triple taxation because income tax andcapital gains taxes have already been paid:
In this sense, many taxes double dip for example, PST, GST, gas,alcohol, etc. are all applied after income tax. The only question iswhat is fair and progressive?
- Once installed, the inheritance tax rate will increase from 17 per cent:
By this reasoning, we should eliminate all taxes in case theyincrease.
- The kick-in threshold of $1 million isn't high enough or will notincrease to reflect inflation:
This is surely a mere point of negotiation. The U.S. threshold is $1.5million.
- An argument against any taxes is that they reduce the incentive toearn, save and invest money:
Americans have suffered an estate tax for decades and I would argue thattheir entrepreneurial spirit is reasonably intact, this despite the factthat the U.S. estate tax rate starts at 45 per cent almost three times theNDP-proposed rate.
- The wealthy will find ways to avoid paying inheritance taxes anyway:
This applies to any kind of taxation. Nevertheless, the American estatetax raised approximately $20 billion in 2003. So apparently, eithertheir wealthy are not so smart, or some of them believe it is not theirduty to zealously avoid paying taxes. In addition, one way to lessen theinheritance tax burden on heirs is to bequeath assets to charity, a notcompletely undesirable consequence.
- If they can't evade it, the wealthy will move to more favourablejurisdictions:
Yeah? Like where? As pointed out, the U.S. still has an estate tax which is harsher than the NDP's proposal, and Canada stands alone with Australiaand New Zealand among industrialized countries without an inheritancetax. See ya down under, mate.
- Families would have to sell their farms or businesses to pay the tax:
There are exemptions for family farms and businesses both in the U.S.and in the NDP proposal.
- Inheritors would have to sell the family home to pay the tax. With theprice of houses, especially in Toronto and Vancouver, it wouldn't beunusual to inherit a million dollars or more:
In addition to a possible exemption for principal residences as there isfor capital gains tax purposes, this brings back the kick-in thresholdpoint, negotiable as mentioned. And of course, all of this is relative(so to speak). I personally would welcome the inconvenience of having tofind a way to pay an inheritance tax on $1.5 or $2.0 million.
By arguing against the inheritance tax, there is an implicit, sometimesexplicit, assumption that individuals have done it all themselves; thattheir hard work, effort and smarts are solely responsible for theiraccumulation of wealth. But does the fact that they live in a societythat allows such accumulation in the first place not occur to them, orthat birth circumstances, being in the right place at the right time,sage advice or fortuitous events might have played a contributing role?
This is why prominent individuals in the U.S. like Bill Gates Sr.,Warren Buffet, George Soros, Ted Turner and a couple of thousand otherwealthy Americans have campaigned against George Bush's plan to repealthe estate tax. They acknowledge that they have been the primarybeneficiaries of the robust growth of the American economy, and areconcerned about deepening economic inequality.
In other words, why should those born into wealth or whose parent(s)have managed to accumulate a tidy sum get a head start over othersthrough no initiative from themselves? Whatever inheritance they receiveis already a bonus on top of other advantages they have likely enjoyed easier access to higher, possibly better education, a family atmosphereof success, contacts, etc. Or perhaps we'd prefer to revert to theprinciples of feudalism and be done with it.
Regarding equality of opportunity, Gates Sr., testifying before theSenate Finance Committee hearing on the estate tax repeal said, Whilewe may not be able to ensure that all children start their lives on alevel playing field, that is something we should strive for and theestate tax keeps us closer to that ideal. Buffet has been quoted in theNew York Times saying that repealing the estate tax for the benefit ofheirs of the rich would be like choosing the nation's Olympic team fromamong the children of past Olympic champions.
So, it's all about choices. This debate to me is a no-brainer. But itseems as if it will be pushed aside due to the negative gut reactionsacross the board.