Is there a need for Canada to impose inheritance tax?

Is there a need for Canada to impose inheritance tax? | Smart Association - PCMA

Is there a need for Canada to impose inheritance tax?

For the wealthy and the poor to have a level playing field, an industry think-tank Canadian Centre for Policy Alternatives (CCPA) is pushing for the federal government to impose an inheritance tax.

In a recent study, economist David MacDonald analysed the inequalities between those at the wealthiest end of the spectrum and the average families. He found that the wealth gap in Canada has been growing for the past 17 years and only a progressive tax system can help solve it.

"Canada’s dynastic families have got it all—more wealth, more inheritance, and they are as lightly taxed as they were the last time we looked in 2014. You’d expect Canada’s tax regime would try to counteract this concentration of wealth at the very top, where it’s needed the least, but in fact, federal policies encourage it," he said.

According to the study, the 87 wealthiest families in Canada have seen their net worth grow by an average of 37% between 2012 and 2016, roughly $2.2bn to $3bn a family on average. On the other hand, middle-class families grew their net worth by only $41,000 on average during the same period. As a result, the "Wealthy 87" own 4,448 times as much as the average households and as much wealth as 12 million Canadian combined.

To give it another perspective, the collective net worth of the Wealthy 87 ($259bn) is a little short of what everyone in the provinces of Newfoundland and Labrador, New Brunswick and Prince Edward Island collectively owns at $269bn.

MacDonald said setting in place an inheritance tax and eliminating tax preferences for capital gains are needed to shrink the wealth gap.

"Instituting an estate tax and eliminating tax preferences for capital gains and dividend income could go a long way to curbing the tendency of Canada’s tax system to heighten socially, politically and economically harmful levels of wealth concentration in Canada," he said, noting that of the G7 countries, Canada is the only one without such duty on tremendous family wealth.

In his computations, if Canada were to impose a 45% tax on inheritances of over $5m, the government coffers would be able to get $2bn extra.

Additionally, MacDonald believes there is an urgent need for the government to revisit policies surrounding capital gains and dividend income, which are taken advantage by wealthy people.

"Eliminating the 50% tax break for capital gains and the 25% tax break on dividends would raise $11bn and $5bn annually while almost exclusively targeting Canada's highest earners," MacDonald said.

Not everyone agrees with MacDonald's sentiment. In a report on CBC News, Harvard economics professor Greg Mankiw said boosting inheritance taxes would likely result in the dampening of the investment activity.

"It is a good rule of thumb that when you tax an activity, you get less of it. If we stopped taxing estates, estate-building would be more attractive, and that would be good for everyone in the economy," he said.

Mankiw added: "The repeal of the estate tax would stimulate growth and raise incomes for everyone, even those who never receive a bequest."

For Canadian political commentator David Moscrop, while there are many economic and moral reasons to adopt an inheritance tax and redistribute wealth, self-preservation is one reason why everyone should support its implementation.

In a think piece on Washington Post, he said: “This is precisely the moment at which we should double down on including people in the political system. But that requires including them in the economic system, too. That means redistribution.”

“One fine way of doing that is taxing extreme wealth through an inheritance tax and using those funds to invest in something far more valuable than a vacation home or luxury yacht: the preservation and expansion of democracy.”