And the meek shall inherit…

Thursday, August 10, 2006

Did you hear the joke about inheritance taxes? No, not the one about death and taxes being the only sure things (now the government has figured out a way to put them together). No, not even the one about governments not being content with taxing you while you’re alive (now they want to tax the corpse as well). Actually, the cruel joke I’m interested in talking about is the recent failed attempt to reward wealthy Republican donors by rolling back estate taxes in the United States.

Desperate Senate Republicans even tried to tie a massive cut in estate taxes (dubbed “the Paris Hilton tax cut”, since only the 8,200 richest families in the country would benefit) to the first minimum wage increase in a decade – something that they had consistently opposed. They wanted to exempt all estates up to $5 million ($10 million for a married couple) and to reduce the tax rate to 15 per cent for inheritances up to $25 million and 30 per cent for those above that amount.

John Irons, of the Center for American Progress, puts those numbers into perspective: “The heirs of the $10 million estate would get a tax break worth as much as 183 years of the income of a full-time minimum wage earner.” Other interesting numbers are provided by the Center on Budget and Policy Priorities (CBPP), which reports that the changes would “cut government income by $753 billion in the first 10 years”. And, in contrast to the one half of one percent of Americans who will pay the tax in 2006, “increasing the minimum wage would benefit eight million American workers”. The CBPP has also published “Nine Myths about the Estate Tax”, which you can read at http://www.cbpp.org/pubs/estatetax.htm).

One of the most compelling arguments in favour of maintaining the estate tax at its current level has come from former Starbucks President Howard Behar. He argues that “paying an estate tax is one of the ways that those of us who have accumulated wealth in our society re-fertilize the garden of opportunity that we have benefited from…. None of us exists on an island – and no wealth can be created without a society that provides a fertile ground of opportunity…. Passing on unlimited inheritances is not only bad for our children but also unhealthy for a democracy to tolerate concentrations of hereditary wealth and power.” Behar’s argument is similar to that of American industrialist Andrew Carnegie who once observed that “where wealth accrues honorably, the people are always silent partners.”

While the debate continues south of the border, it’s worth noting that Canada (along with Australia and New Zealand) is one of the few industrialized countries without an inheritance tax. We used to have one, but it was quietly repealed in the 1980s by Brian Mulroney. The last time that anyone suggested that it be reinstated occurred when Jack Layton and the NDP included the following phrase in their 2004 election campaign platform: “Implementing a US-style inheritance tax on inheritances of more than $1 million, exempting in-family transfers of small businesses and family farms.” Really, that was it; there was no attempt to expand on the proposal and no background information was given to party candidates who may have wished to defend it.

During the campaign, economist Marjorie Griffin Cohen came to the defense of the proposal but, as far as I can tell, her article was published nowhere except on the website of the Canadian Centre for Policy Alternatives. She noted that “the average wealth of the 311,000 families in Canada that would pay the tax is $2,278,863. With the first $1 million free of tax and a 17% tax rate on the rest, taxes on these inheritances would average about $230,000. So, the inheritors would still have over $2 million to divvy up. Not bad.”

Cohen went on to criticize “the trend toward the rich getting richer and the poor poorer. Since 1984 the wealthiest 10% of the population in Canada improved their situation considerably: they now own 55.7% of everything in the country (compared with 51.8% of everything in 1984). The remaining 90% of Canadians lost ground, with the poorest losing most. This is not only unfair, but can be directly linked to public tax policies, at both the federal and provincial levels, that favour the wealthy.”

But, outside of the CCPA’s website, the idea was universally attacked (including the widespread telling of the lame jokes quoted above) by the media, by other parties and even by one of Layton’s own MPs (Peter Stoffer). The supposedly left wing CBC chimed in, saying that the NDP was “in effect penalizing babyboomers.” Instead of stating the case for the tax, Layton quickly abandoned it, admitting that it wouldn’t be part of the party’s negotiating position in a minority Parliament. And, when it came time to draft the party’s platform for 2006, an inheritance tax was nowhere to be found.

The idea should be brought forward again, but this time with the party being fully prepared to fend off criticism (noting that it would apply to only the wealthiest 2.5 per cent of Canadian families would help). While the party should be open to modifying the proposal (such as adding an exemption for a principal residence), the idea has considerable merit and should not be jettisoned at the first sign of opposition.
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