Canada Suffers from Brain Drain. Punish the Goers

The modern university has long been lauded as the ladder for social mobility. Get into a university, get studying, get your degree(s), and get rewarded with a high-paying job. However, universities and admissions, just like all things in life, are also sullied by privilege. Those from higher socioeconomic backgrounds make up a larger percent of the student body of universities, with differences being even more staggering when scaling to universities with much more competitive entrances.

Among Ivy League universities, the proportion of students from the top 1% of income outnumbers those from the bottom 60%. While in Canada, the top universities are public and lack legacy admissions, they are not an exception to this. A 2002 study published in the Canadian Medical Association Journal found that 57% of medical students came from backgrounds with incomes in the top 20% but 15% of students came from the bottom 50% of incomes. Where 8% of Canadian students attended a private high school, roughly 30% of commerce students at Queen’s University attended one. The median household income of a University of Toronto (UofT) law student was greater than $150,000 a year. 2 in 3 Canadian adults don’t have a postsecondary degree, but annual surveys done by the University of Waterloo’s software engineering cohort found that number to hover around just 1 in 5 for their parents.

This demographic skew creates an uncomfortable reality for the average Canadian taxpayer hoping for the best education for their children. Worse is that the average Canadian taxpayer is helping fund these students with existing financial safety nets and heavily subsidized seats. One may argue, though, that these highly educated students contribute back to the Canadian economy.

A study done at Brock University, Reversing the Brain Drain, found that 66% of Waterloo’s software engineering graduates and up to 30% of top tech graduates from other elite Canadian universities emigrated to the US upon graduating. Nearly 20% of UofT law students, 10% of Western University’s Ivey business students, and nearly 25% of PhD graduates do the same. The Ontario government largely subsidizes domestic tuition (about half). Considering that many of these top programs are still incredibly expensive post-subsidization, with the majority surpassing $20,000 annually, Canadian taxpayers are largely subsidizing education for already privileged students, just for many of them to move to the US. The Canadian taxpayer loses the prime earning years of that high-earning graduate. While some may return later in life, the most fiscally productive decades—the years where they would pay the highest income taxes to support our healthcare and infrastructure—are exported to the IRS.

So why not tax these graduates trying to emigrate? As we have already discussed, they are largely from already highly socioeconomically privileged backgrounds. The majority of them are almost certain to pay back their student loans immediately (should they even have any; only 15% of Waterloo’s software engineering cohort took any non-merit-based financial aid or student loans.). The mean salary, including signing bonuses and other benefits of Waterloo’s class of 2022 software engineering students within one year of graduation was $336,276. Just the thought of their average starting salaries dwarfing the average Canadian household three-fold feels horrific.

The request for graduates like these to repay a provincial subsidy upon leaving would not be a financial barrier to them, but more a one-time hit. With earning potential to place them easily in the top 1% of incomes, even a fee equal to the subsidized Waterloo engineering tuition—$40,000—would realistically be just a fraction of their signing bonus. This hiccup will not only incentivize some to stay within Canada but will help recover the public subsidy from graduates who leave before contributing to the Canadian tax base. If the “product” of the highly-educated, skilled citizen is exported to the US, the “developer” being the Canadian public should, at least, feel as though it was purchased from them.

However, this proposal clashes with the Canadian Charter of Rights and Freedoms. Section 6 guarantees all citizens a right to enter, remain in, and leave Canada. A hefty financial penalty for emigration acts as an unlawful barrier to this right. However, it protects physical mobility—not financial immunity.

Anyone with a mortgage or student loan is able to move to the US; they still need to pay off that debt, regardless. With the previous example of a $40,000 fee, the fee could furthermore be relaxed to automatically clear should they work in Canada for 5 years. Similarly, the Canada Revenue Agency already has something similar to this, but for wealthy asset owners. Deemed Disposition is a tax rule requiring that certain types of property have to be sold at fair market value, then reacquired as a departure tax. And in a way, Canadian medical institutions are doing something similar, with voluntary Return of Service (ROS) agreements. Here, provincial health ministries sponsor residency training for doctors; in return, the doctors sign a contract to practice medicine for several years in a dedicated spot. Break the contract by, say, moving to the US and penalties well over $100,000 will ensue.

If provincial governments can legally use ROS agreements to clawback taxpayer investments on doctors, there should be no reason they can’t do the same for future Waterloo engineers or UofT lawyers. Being given the privilege to a heavily subsidized seat in an elite program, they enter a contract with the Canadian taxpayer. This contract is not moral by “feeling like” you owe them; the students, literally, do owe the Canadian taxpayers. Privilege is relevant not as a moral judgment, but as a predictor of mobility. Wealthier students have the networks and safety nets necessary to navigate US immigration, choices less available to their lower-income peers. When a taxpayer-funded seat is occupied by a student with high exit potential, the public takes a risk. The clawback is simply the insurance premium on that risk. Perhaps, by paying the non-subsidized fee as a student, they could avoid the said $40,000 emigration fee; just as it is voluntary with the ROS agreements. If they take the subsidy, they must accept the conditions. By enforcing this exit tax, Canada recovers its capital, mitigates the financial wounds of top talent, and ultimately reinvest it in the infrastructure of opportunity for those who remain.