Make Canada Greater Again: What if Canada annexed New York?

An immodest proposal

Well, this has been an exciting few weeks! The Trump Administration has been a bit … uh … overwhelming. It’s not even clear where to start. So I won’t!

But Trump’s continued declarations about annexing Canada—before the Superbowl, no less!—are getting odd, especially with his erratic Panama diplomacy, or lack thereof.

So to shake things up, I decided to expand and update something I wrote back in 2020: what would change if Canada annexed New York State?

That building behind me is not the State Department—this is Montreal, standing in for Washington, D.C. for a TV show in 2018, the last time I was in Canada

This Substack often explores seemingly outlandish ideas, and sometimes takes them seriously. This is not one of the ideas to take seriously. New York is not seceding, and while some in the Trump administration might like to lose a deep blue state, the President is certainly not among them.

It genuinely is outlandish!

But the reverse … well, not so much anymore.

Paul Musgrave seriously considered the possibility of an American invasion, and I found his analysis edifying. However, his attempt to quantify the economic costs of annexing Canada was weak—he noted transition costs but failed to estimate them or acknowledge potential benefits. (Apologies, Dr. Musgrave!)

So let’s look at this the other way around. What would happen if Washington said “good riddance” to New York State? Well, I wouldn’t trust an independent New York Republic not to go rogue, and I’m a fourth-generation New Yorker.¹ So if you’re gonna imagine letting New York go, make it go north.

Maybe we’ll get some insights!

The name

Well, first, New York State would not need to rename itself. Canadian law can handle a province that calls itself a “state” as easily as the U.S. constitution handles states that call themselves “commonwealths.” But let’s call the new jurisdiction “New York Province” or “NYP” anyway, just to avoid confusion.

Provincial government

The Canadian constitution requires that each province have a “lieutenant governor” appointed by the Governor-General. They appoint the “executive council,” or cabinet. Informal practice has it that the provincial premier (elected by the provincial parliament) selects and runs the executive council. Formally, the executive council then “advises” the lieutenant governor to do things. Informally, the premier runs things unless either the cabinet or parliament rebel, or she loses an election.

Needless to say, that is not how things run in New York State.

So what to do? There are three options:

1. Amend the Canadian constitution to give New York Province an exception. Sure! This could work. In theory, Canadian provinces do not have constitutions, but a partial exception was made when Newfoundland came in, and the Canadian constitution is flexible enough to create a workaround. Except, well, that had better be popular in Canada because the constitution requires that every single provincial legislature ratify an amendment to that effect;

2. Amend the New York constitution to create a parliamentary system.² Informal institutions don’t change easily. The New York legislature is full of prima donnas who do NOT consider themselves to be parliamentary backbenchers and are not used to acting like ones. In addition, the powerful politicos in the State Senate are not going to idly let the Assembly take on the role of selecting the premier. And nobody is going to want to give the Premier of New York the power to call elections whenever she pleases. I am having trouble imagining how this could happen.

3. Finagle it.³ The NYP constitution would continue to say that the governor is directly elected; the federal government would then informally ratify the election by having the lieutenant governor appoint the governor-elect and her cabinet choices as the new executive council.⁴ I suspect that this could cause some unintended consequences and potential problems, but it doesn’t seem unfeasible.

Integrating the judicial systems

The biggest issue is that under current Canadian law, state criminal law will be replaced by the Canadian federal criminal code. The transition would be tough.

State judicial elections would go out the window. I think you could continue to elect the Attorney General, but her authority would shrink considerably. You could probably continue to have elections for sheriff, but it would also be a departure from Canadian norms.

The Canadians would also have to decide how much leeway to give New York in its civil codes. If they mandate that NYP conform to the Canadian system, then civil courts will lose much of their power and many trials that were previously decided by juries will switch to judges.

Integrating the two systems would be a major headache for judges and lawyers. I have no idea how long it would take them to adapt. One year? Two? Ten? Canada would have to agree to long phase-in period during which the New York court system would be linked to Canada’s but not integrated into it. During this time every lawyer in NYP will have to effectively retrain. Law schools would have to revamp their curricula.

Alternatively, the Canadians could create an exception for the new province. Conceptually, this would be relatively easy to administer. (Australia and the United States do this as a matter of course.) It would be a departure for Canada but it would not mean that the federal criminal code would cease to apply to New York Province. Rather, it would mean that New Yorkers were subject to two separate criminal codes, much as they are today.

Should NYP get an exception, the double jeopardy would be a bigger problem than it is in the United States. Dual sovereignty is the idea that the states and the United States are both sovereign.⁵ That means that it is quite legal for a person to be tried twice for the same crime in state and federal courts despite the Fifth Amendment. The Constitution, however, limits Congress’s ability to pass criminal law, so the problem doesn’t come up as much as it would in Canada. Canadian courts would have to sort that out.

Business ownership

Certain industries would face ownership restrictions. U.S. companies operating in the state that weren’t locally owned would need to divest assets to Canadian buyers.(Canada would of course now include New York and any other states that made the switch.) These affected industries are pretty broad, including transportation, airlines, railways, shipping, publishing, financial services and telecommunications.

Telecoms and airways are straightforward. U.S.-owned airlines would need to divest their operations for point-to-point flights between New York and other parts of Canada. Similary, telecoms companies would need to sell or spin off their New York operations. Canada has been relatively open to foreign ownership in transportation, so trucking and railroads would likely experience fewer disruptions. Some retail chains might want to restructure their New York operations, but that won’t be that difficult.

Financial institutions face stricter regulations. Large banks (with over $8 billion in equity) and demutualized insurance firms would require restructuring. Canadian law individual ownership to no more than 20 percent of any class of voting shares or 30 percent of any class of non-voting shares. In addition, the CEO and a majority of the board of directors of every bank or federal insurance company will need to be Canadian residents.

Publishing is a weird one. Existing operations would only need to sell their operations to Canadian buyers if they intended to acquire an existing Canadian company. But it’s equally likely that you’d have big New York publishing houses would not qualify for Canadian subsidies or be able to acquire smaller Canadian competitors. It would probably get weird very quickly, but there shouldn’t be any constitutional problems.

The Canadian government could continue to protect small Canadian publishers against large New York-based Canadian operations. Of course, how long that would last once the New York representatives from the federal branch of the Working Families Party entered the Canadian parliament is a different question …

Labor unions

New York employers are going to be unpleasantly surprised. Most New Yorkers are probably going to love it. Of course, a lot depends on what the politicians in Albany do with their liberation from the strictures of American labor law.

Gun laws

Canada has recently tightened its gun laws, so the change will be larger than it used to be. Assault weapons—vaguely defined, apparently including all semi-automatic long guns—are now restricted. As of 2023, so are handguns, with barrels under 4-inches completely prohibited. In both cases, however, existing owners are grandfathered, which will also likely extend to New York Province.

There may be some disquiet in parts of upstate (as there is in rural Canada) but I suspect New Yorkers are going to love this change.⁶ Those that do not, however, really will not. (I live in a heavily-armed section of Brooklyn and most of the neighbors whom I know own firearms. I know this for reasons that I should not elaborate upon in order to protect the guilty.)

Fiscal federalism

The Canadian federal tax system is less progressive than its U.S. counterpart. New York, as the wealthiest province, would see modest tax reductions overall.⁷ The problem, the Goods and Services Tax (GST) would introduce a 5% VAT on purchases, creating noticeable consumer cost increases unless the GST is phased over several years.

Canada channels significantly fewer resources through its federal government than does the United States. Gross federal spending in New York—sans interest payments but including direct purchases of goods and services (G&S)—came to 13.2% of state GDP in 2022; the equivalent share for Ontario was only 10.9%.⁸ (The high level of direct purchases in Ontario is due to the fact that the federal government is based in Ottawa.) The below table shows the figures for Ontario, New York State, and a hypothetical New York Province under Canadian institutions.

Let’s take each category in turn. For retirement spending, the transition would be smooth. Canada could take over Social Security payments for existing retirees without much problem while transitioning younger workers into the Canada Pension Plan and Old Age Security. Overall spending would not change during the transition.

For other transfers (not including medical care) the Canadian federation is about as generous as the United States, but the share is different. Contrary to my impression of Canadian federalism, in rich provinces like Ontario the federal government gives more to individuals directly and less to provincial and municipal governments.⁹ (The whole thing is actually distorted by Alberta’s oil money, but let’s leave that for now.) On net, NYP will receive fewer federal funds that it does not, but that will be manageable.¹⁰

The bigger annoyance would be managing the shift in spending from federal money handed over to Albany to federal money handed directly to New Yorkers. That will require a lengthy and complicated transition. That said, it is a solvable problem.

Federal purchases of goods and services will go down, since Canada spends less on defense than the United States. Nonetheless, it’s a manageable problem, although there will be losers. The Canadian government would likely have to agree to pay federal bureaucrats’ salaries, at least for a transition period.

Health care would be a doozy

But health care … oh boy. The CMS takes a survey of American health care spending every five years. For 2020, it estimated that New Yorkers spent about 13% of GDP in health care. The feds cover about 44% of that with state and local funds picking up an additional 16%.¹¹

New York is going to have a problem under the Canada Health Act. Medicare and Medicaid transfers from the U.S. federal government will dry up, and here (somewhat perversely) the United States is way more generous than the Canadian confederation. New York will lose federal money worth almost 6% of GDP. The Canadian Health Transfer (CHT) would come to only 1.2% under the current formula, blowing giant holes in the New York provincial budget.¹² In addition, New York Province would have to replace most private spending with new services financed by a public single-payer system.

How big a hole? Assuming that 80% of current private spending will have to be covered by single-payer:

\(\text{New NYP spending} = 4.2\% \text{ new services} + 5.9\% \text{ lost U.S. funds} - 1.2\% \text{ CHT} = 8.9\% \)

8.9% of GDP is a lot.

Now, Medicare and Medicaid are currently more generous than Canadian health care, even though they require co-pays. Reducing service to Canadian levels would reduce the cost, although I doubt that would be politically viable.

A possible solution is a Canadian federal subsidy — call it the Medicare Accession Grant Agreement (MAGA) — of say 6% of GDP. The federal government would still enjoy a small subsidy from the new province. But New York Province would have to plug the remainder of the gap by raising taxes another 3% of GDP.

State taxes are currently only about six percent of GDP.¹³ But a tax hike of that magnitude not impossible.¹⁴ Ultimately, the cost would come to less than half what single-payer would require should New York remain part of the United States. Moreover, it would take off the burden of employer-provided private health insurance.

So maybe the politics would shake out. But it would be a heavy lift.

Longer term

The productivity gap between the U.S. and Canada has been growing. Canadian GDP per capita was 85% of the U.S. level when Justin Trudeau was elected in 2015. Now, it’s only 75%. Noah Smith attributes the early opening of this gap to a fall in oil prices, which seems broadly correct.

Since 2019, however, the problem appears to be due to a combination of regulatory inefficiencies and internal trade barriers. (Smith cites this RBC report on Canada’s woes.) Politically, making New York a province is not going to make either of those problems any better. Economically, it is possible that stepped up competition from NYP firms would give Canada a jolt, but it’s equally likely that federal policies would slow New York down, not least in the financial sector.

On net, I would bet that New York’s growth would slow down. After all, in addition to Canadian institutions, the transition to a new country would generate a great deal of economic uncertainty.

Moreover, as Canada is discovering, nominal independence doesn’t free you from the effects of American policy when you’re sitting next door — if the American economy goes wrong for whatever reason, then Canada won’t be insulated.

Of course, that assessment would change if Canada’s soon-to-be-elected Conservative government got a handle on the country’s economic problems and caused growth their to accelerate. But that would be ironic, no?

Conclusion

Joining Canada would certainly be feasible. The biggest challenges would be integrating the criminal justice system and transitioning to single-payer health. The former is surmountable with policy flexibility; the latter would necessitate major tax hikes. Nonetheless, it could plausibly be win-win for both NYP and the rest of Canada, assuming that Canada allows NYP to pay for the health-care transition out of the fiscal surplus generated by the new province and that New Yorkers want a single-payer system to the tune of three percent of GDP in new taxes.

For Canada, acquiring New York would provide economic dynamism and additional tax revenue. New York would get cheaper single-payer (three percent of GDP is well under half what it would require for New York to create its own single-payer system) and slightly lower federal taxes, plus labor and gun laws closer to the electorate’s preferences. But it would also risk slower economic growth and require local tax hikes.

This could be wrong, but the above is how you start the analysis! I hope Professor Musgrave finds it thought-provoking.

Now, the reverse question: what if Canadian provinces joined the U.S.? I guess I’m going to have to take that on next, sigh …

1. My father once described Argentina as what you’d get if you gave the people of New York their own country, “without the WASPs to rein us in.” He later described Israel and Italy in similar terms, for similar reasons. (To be fair, his impressions of Italy were formed from invading the place in 1943.)

2. Canadian provinces do not have their own constitutions. So in order to truly conform to Canadian norms, New York would have to abolish its constitution. That will not happen, so this post assumes that the Canadians have accepted that in order to bring N.Y. into Confederation.

3. My dearly departed Aunt Sherri of Fort Lee, New Jersey, used a word that sounded to me like “farshlep” in order to mean “finagle.” Despite what you may believe, finagle is not a Yiddish word, and Yiddish apparently has an equivalent. But it really does feel like “finagle” should be Yiddish.

4. New York Province would need to rename the current position of “lieutenant governor.” That would not be hard, rename it the “vice-governor.” I do not think that you would need to rename the position of governor.

Apropro of nothing, the current Lt. Governor of New York is Antonio Delgado, a politician I happen to like. Here is an analysis of his voting record from when he was in Congress:

The red dot next to Representative Delgado? That’s Kevin McCarthy.

5. Section 11 of Canadian Charter of Rights and Freedoms prohibits double jeopardy.

6. The linked poll did not ask about a handgun ban.

7. The top income quintile in the United States pays a bit more than two-thirds of all federal taxes, according to the Tax Policy Center, which is a branch of Brookings and the Urban Institute. See TPC, Tax Model Analysis Baseline Share of Federal Taxes (October 2022), Table T22-0094. In Canada, the equivalent number is only 54%, according to Jake Fuss and Nathaniel Li, “Measuring Progressivity in Canada’s Tax System, 2024,” Fraser Research Bulletin (July 2024), Figure 2.

The reason is that the Canadian federal government relies heavily on the VAT, which is regressive, and income tax rates (for both earned and unearned income) max out lower than south of the border.

8. These estimates exclude Covid-related spending. Provincial GDP estimates can be found at Statistics Canada, Provincial and territorial economic accounts: Interactive tool.

9. All figures on intergovernmental transfers subsume municipal bodies into the state or municipal governments. This is particularly important for NYS/NYP, since New York City is a massive direct recipient of federal funds.

10. The variation of 0.5% from these calculations is well within the annual variation reported by New York State. In other words, these shares vary a lot over time and you should discount small differences!

11. The sources are Centers for Medicare & Medicaid Services, National Health Expenditure Data: Health Expenditures by State of Residence (August 2022); New York City Comptroller, Fiscal Note: Risks for Medicaid and other NY State Healthcare Programs (January 2025), page 32 in particular. Federal health care spending in New York State is from Office of the New York State Comptroller, New York’s Balance of Payments in the Federal Budget, Federal Fiscal Year 2022 (2022). (The full set of reports is available here.) VA administration spending was broken up into health care (37%) and retirement (51%) using data from the Department of Veteran’s Affairs, President’s Budget Request – Fiscal Year 2022 (2021), pages 4 and 28, available here.

12. Canadian federal healthcare spending in Ontario is from Statistics Canada, Table 36-10-0450-01, Revenue, expenditure and budgetary balance - General governments, provincial and territorial economic accounts (x 1,000,000). Data is from 2020, using an exchange rate of 1.3013 C-dollars for every USD, taken from the Bank of Canada’s annual exchange rate calculations. The Canadian formula is at a fixed level per capita, so calculating the hypothetical transfer to New York Province was straightforward. The same is true of the Canadian Social Transfer.

13. State taxes came to 5.9% of GDP in 2022. See Office of the New York State Comptroller, 2023 Financial Condition Report For Fiscal Year Ended March 31, 2023, Appendix 3.

14. NYS recently estimated at that a 0.5 percentage point increase on marginal tax rates for incomes over $5 million would raise 0.1% of GDP in revenue. An 15% raise on top incomes would not be viable. Alternatively, a 6% VAT on top of the federal GST and the existing 4% state sales tax would raise the required funds (see page 20 at the previous link), for a combined VAT rate of 15%, rising to 20% in New York City. These rates are within European and Latin American norms, but it would result in significant price hikes.