Estate Tax: Social Equality or a Terrible Idea

As I started reading a recent article by Linda McQuaig of the Toronto Star titled “Tax Exempt Fortunes Feed Inequality” I knew I my views would be widely divergent.

The article proposed that removing the Estate Tax in 1972 deprived Ottawa of much needed revenue and put Canadians on a path toward greater inequality. Estate tax, which is/has been a huge issue in the United States, is essentially a tax levied at death on the deceased’s accumulated wealth.

Ms. McQuaig suggests restoring an Estate Tax based on a plan by Neil Brooks an Osgoode Hall tax professor. She argues restoring the Estate Tax would remove or partially address income inequality. Mr. Brooks’ plan would be to tax estates greater than $1.5 million which Ms. McQuaig says, would be enough to set up a $16,000 education trust for each Canadian child on their 16^th birthday.

Ms. McQuaig suggests some may protest this as a tax on the wealthy; I protest estate tax as a double tax. One accumulates wealth with after-tax dollars so to tax your estate on death is double tax. The United States has at least justified estate tax with substantially lower income taxes while one is alive.

For example, take hypothetical Guy, a successful business owner who risks his house and all his assets to start a business. He and his spouse make, on average, $250,000 a year for say 25 years. Each year they pay income tax of approximately $100,000 on their income. Say they keep $75,000 after living expenses and use that to buy a house for $500,000 and a cottage for $300,000 over time. Upon death the house is worth $1,000,000, the cottage $700,000 and the remaining cash around $1,200,000.

Upon the death of the last surviving spouse, their executor would have to pay income taxes on the inherent gain in the cottage of approximately $100,000 on their final terminal tax return. There would be no income tax on their principal residence.

The estate would be worth in total $2,800,000 after paying the $100,000 in taxes. Applying Mr. Brooks’ proposed $1,500,000 exemption, there would still be estate tax on $1,300,000. Say the rate is 40%; the US has an even higher rate, that would be an additional double tax of $520,000.

You can argue as Ms. McQuaig that this is just social policy; I argue it is a blatant double tax.

I recently ate at the Hy’s steakhouse location in Toronto with some friends. We had an excellent meal, including caesar salad, black and blue ahi tuna ,filet mignon and Cajun rib steak. We were well taken care of by the General Manager and Director of Eastern Operations Michael Shatz. The Toronto location is a beautiful restaurant and we were all dressed in a style you would describe these days as “casual smart” (dress pants and shirt) or, in the case of the girls, nicer.

Which brings me to my point of discussion: What is the proper dress attire for a fine restaurant? While I think most people are somewhat “old school” and dress differently depending on the restaurant, I often see people in jeans and t-shirts. Casual is appropriate for many restaurants, and while I have no problem wearing jeans to those type of restaurants, I would never wear a t-shirt.

I think what bothers me is the lack of respect for the restaurant and the other diners. It is like these casual dressers are saying “I don’t care if I am spending $200 or more, I will wear what I feel like.” It just seems to smack of disrespect for the other diners who reserve that restaurant for special occasions, or even those who just expect a minimum dress code. Maybe I have just hit the age where I have now become my parents.

Let's See Where This Goes

Why the blunt bean counter? Because I am blunt! I hear it from my clients, I hear it from my friends and I hear it from family. My clients tell me my bluntness is both my best and worst attribute. However, that is me, and although with old age I have toned it down, it is still the way I am.

I am an accountant, but not a classic bean counter. I have tried to move away from being a bean counter every step of the way. I quickly switched from counting beans to calculating tax and then I happily became managing partner and moved into quarterbacking our clients’ wealth management advisors. But I can’t hide from it, I am an accountant.

Why a blog? I always wanted to write. My chiropractor, and published author, Dr. Elaine Dembe (Passionate Longevity, Use the Good Dishes and Aging Smart) encouraged me to write a book when she discovered I had an outline in my head back in the early 1990’s. And, based on the proliferation of useless accounting and finance books, I probably should have heeded her advice.

My intention in writing this blog is to discuss accounting, tax and wealth management issues. It should be noted that Chartered Accountants cannot provide investment advice, so the discussion will not advise on whether to buy Nogold Mines Inc. (although my own portfolio holds several stocks similar to Cow Pasture Inc.). However, to keep myself and any readers besides my mom interested, I intend to cover whatever is on my mind from sports and business to restaurants, music and what have you. All blogs are subject to the censorship of an editor, appointed by my partners who fear what will come out of my mouth… or at least my computer keyboard.

That’s it for today; I will start this up and see where it goes tomorrow.