Parliamentary budget watchdog Kevin Page says Canadian governments are spending too much or taxing too little – by a combined $46-billion a year. Without more fiscal frugality, he says, this shortfall will persist from here to eternity. (Mr. Page merely says from here to 2085 but offers no reason to think we'll find frugality easier in the 22nd century than in the 21st.)
Old folk, it appears, are mostly to blame. Within 20 years, we'll have 30 per cent more of them (making up almost 40 per cent of the population), and they'll either be goofing off on endless vacations in their federally funded golden years or consuming disproportionate public resources in doctors' offices, medical clinics, drugstores and hospital wards. The obvious solution is restoration of inheritance taxes. If we can't raise taxes on the living (and we shouldn't), we can raise them on the disfranchised dead.
Notwithstanding its historic aversion to taxes, the United States lives more or less comfortably with its death tax. If Americans can abide posthumous taxation, why can't Canadians? After all, we instituted death taxes, between 1892 and 1903, before the Americans. These taxes were the provinces' first direct taxes – and they quickly eliminated the provinces' almost complete reliance on customs and excise taxes. By 1913, "succession duties" provided 40 per cent of the provinces' revenue.
The federal government couldn't resist. In 1941, it levied its first death tax (which provided 2 per cent of federal revenue in its first year of operation). For six years, the provinces and the federal government levied separate death taxes. To end this messy duplication, the provinces ceded death taxes to Ottawa in exchange for transfer payments. Just Society notwithstanding, Pierre Trudeau abolished death taxes in 1972 as part of a package of controversial tax reforms. (The government, of course, still requires that estates pay capital gains taxes due on the date of death.)
Oddly enough, death taxes used to offer common meeting ground for conservatives and liberals. Adam Smith himself endorsed death taxes in The Wealth of Nations. "There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death," he wrote. "The most absurd of all suppositions [is]that every successive generation of men have not an equal right to the earth." He said inheritances could be morally justified when used "to provide for dependent children."
For his part, Thomas Jefferson wondered whether all hereditary privilege should be abolished. "The earth," he said, "belongs in usufruct to the living." Usufruct means the right to use property that legally belongs to someone else – so long as you don't neglect it or ruin it.
Teddy Roosevelt vociferously championed a steeply graduated death tax – which Congress enacted in 1916, seven years after he had left office. Though wealthy himself (from a family fortune in plate glass), Roosevelt regarded the cause as more moral than economic. The transmission of enormous wealth to young people, he argued, "is a detriment to the community at large."
This argument is essentially the same as the one advanced by philanthropists Bill Gates and Warren Buffett (who, aside from wanting his taxes raised, doesn't believe a country should permit "an aristocracy of wealth"). This can be regarded as Capitalism 101: You have a right to what you earn, either in money or in privilege; you don't have a right to bequeath a dynasty.
This doesn't mean cutting off spouses or depriving one's children. Theoretically, the U.S. exempts the first $5-million in any estate from death taxes and applies a 35-per-cent tax rate on the rest of the estate. In fact, though, the U.S. tax code permits so many deductions that many estates pay nothing at all.
The Brooking Institution's Tax Policy Center estimates that 114,600 estates will file returns in 2013 (out of 2.5 million individual deaths); 52,000 of these estates will pay $40-billion in taxes. On the basis of the usual 10-to-1 comparison, a similarly loose Canadian death tax might yield $4-billion – and hurt no one very much.
For further discussion of death taxes, Google leftist philosophy professor Sam Fleischacker's essay in Salon: Why Capitalists Should Like Estate Taxes. Why, indeed. For a more Just Society.