As a libertarian, I have spent a fair amount of time criticizing and scrutinizing bad ideas that come from politicians and other government officials in the hopes of "making government great again." From time to time, these bad ideas come from the private sector. Enter Deutsche Bank. Last week, the multinational investment bank Deutsche Bank released a research brief called What We Must Do to Rebuild. Within this brief was a proposal for a five-percent work-from-home tax.
Why is Deutsche Bank so eager to implement a tax on those who work remotely? From Deutsche Bank's view, working remotely is a privilege. Those who work remotely are less likely to contract COVID-19, either on their commute or in their place of employment. Part of the idea is to subsidize lower-income workers who are unable to work from home. Pandemic notwithstanding, working from home saves on such expenses as commute, lunch, work clothes, and dry cleaning. This would also imply that those who performed the related services are either out of a job or have reduced hours. Because of these benefits, Deutsche Bank argues that there should be a five-percent tax on income for each day worked at home. Deutsche Bank estimates $49 billion in annual tax revenue as a result of this tax.
This is might sound nice and dandy, but here are some issues to take with the proposal (aside from the fact that Deutsche Bank has a lot of commercial real estate holdings and remote work would affect their bottom line):
1) Enforcement and Tracking Costs. According to Deutsche Bank's own survey data (p. 33), 96 percent of workers are not going to be working remotely every day post-pandemic. Since most people would not work remotely all the time, this means that the tax would most probably be charged on a pro rata basis. HR departments would have to track when employees are in the office and when they are not for tax purposes. Additionally, they would need to distinguish when they are working remotely and when they are out of the office for something such as a business trip or an on-site visit. As the Tax Foundation points out, this complicates matters for those with performance- or project-based elements to their compensation package.
2) More complicated tax code. These complications are not only an issue for those collecting the labor data. It would make tax collection and enforcement more complicated, which could lead to greater tax fraud and evasion. If there really is a correlation between income bracket and remote working, you could simply alter current income tax rates to compensate or make similar adjustments to the current tax code.
3) We already have a tax system to help the poor. Our taxation system is a progressive one, which means that it is designed to help the poor. More to the point, we already have general taxes that are used or could be used to fund welfare benefits or wage supplements to deal with the short-term labor displacement.
4) Would it really help the poor? If the wealth transfer translates into a $1,500 a month check for lower-income workers, it would be likely that employers would adjust by offering lower wages. After all, we see such behavior in minimum wage, payroll taxes, or other labor laws in which the tax incidence ultimately falls on the worker. In net, the effect for low-wage workers might not be that much.
5) Does working from home really mean less spending? One of the concerns of the Deutsche Bank is that people will spend less because they are working home. First of all, if that is the case, what is the issue with increased savings, especially in a society that had a lower savings rate pre-pandemic (Federal Reserve)? Also, it is perfectly reasonable to assume that the demand is allocative, which is to say that people could simply spend their disposable income elsewhere.
6) Labor rigidities and assessing costs of remote working. Much like everything else, there are costs and benefits to everything. The Deutsche Bank report seems to be dismissive by asserting that the costs are low. Aside from dealing with potential child care, here are a few: paying for one's remote work setting, increased utility bills, having to be one's own computer technician, increased social isolation, and smaller likelihood of having one's work noticed for promotional potential. As Deutsche Bank survey data showed (see above), most will not work remotely completely, assumedly to balance the pros and cons of remote working. Instead of using the tax code to incentivize a one-size-fits-all solution, employees and employers should have the ability to determine how much they work from home based on their circumstances.
7) Why disincentivize remote work? Generally speaking, taxation has two general purposes. One is to collect revenue. The second is to disincentivize behavior. In this case, the behavior that is being disincentivized is remote working. Remote working is not hurting society or even the government. The tax de facto acts as a punishment on remote working, a trend that has been taking place within the past decade and was accelerated as a result of the pandemic. This makes even less sense when considering that productivity and job satisfaction have overall increased as a result of increased remote work. There is no compelling reason to incentivize people to work in brick-and-mortar establishments.
A remote work tax is similar to proposing a tax on people who recycle or decide to life healthily. If anything, there is a stronger argument for subsidizing it (not that I am in favor of this proposal per se) since less commuting would be better for the environment. There is a reason why there is no wide public interest in a remote work tax: a remote work tax truly is a solution in search of a problem.
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