I think there are pros and cons.
Two cities shouldn't become one if they have fundamentally different views about how a city should be run. If one is very liberal and urban minded and the other is extremely suburban minded, the resulting conflict and loss and efficiency will likely overweigh the benefit. It is like Obama and Sara Palin shouldn't marry each other just because they can save money as a couple.
You make an interesting point, but you should also think of
why Toronto is how it is and why Scarborough and the inner suburbs are how they are. Both cities grew up with influences from each other. I don't believe urban growth is politically drive, I believe it is driven by social circumstances, and the nature of the environment a city grows up in. Nature over nurture. Toronto is so dense in the Central business district (CBD) because it so happened that over time, a large amount of industry and offices went there, so people wanted to live closer to where there was work.
I think regardless of where you go in North America, and to some extent the whole western world, you will find similar growth trends to Toronto, albeit in differing intensities and urban designs. What I mean to say is that, how a city grows, I don't believe, is dictated by politics. It is dictated by necessity, and it's need to change. Over the next fifty years, due to necessity, you'll see the inner suburbs becoming denser as people realize that living farther and farther away is not sustainable. 50 yrs ago, Toronto was a much smaller city. Living out in Vaughan, or Scarborough and commuting to Toronto by car, didn't affect anybody, there was very little congestion. In fact many highways in North America were built right through downtown cores.
Speaking of larger tax base, it might be true. However, without scarb and etobicoke, we cans imply focus on a much smaller and denser area and don't have to built subways to Siberia in the first place. It might save a lot of money.
The City of San Francisco and Boston are good examples of not amalgating surrounding cities. They are similar in population than Mississauga yet are still great cities to live in.
I must admit, San Francisco and Boston are my two favourite cities in the U.S., and are definitely good examples of where a bunch of smaller municipalities worked together to create regional transportation (i.e. the Big Dig, BART in San Fran). In these cases though, a lot of funding came from upper levels of government (BIG DIG was funded by the feds) and the creation of a regional transportation agency with greater power to plan transportation helped in this regard (I believe Boston's system has the Charlie card which is what presto is aiming towards), kind of like taking the politics out of transportation planning.
So you are right that it
can work, but I would not take the exceptions as the rule.