In today's Finshots, we talk about a brand new idea called "Privilege Tax".

Policy

The Story

A few days back, Deutsche Bank’s research desk published a report titled — “What we must do to Rebuild”. The report charts out possible measures governments across the world ought to consider while rebuilding the global economy and it prescribes solutions that could offset the devastating effects of the pandemic. However, there was one interesting proposal that caught everybody’s attention.

As the author of the report notes —

For years we have needed a tax on remote workers — Covid has just made it obvious. Quite simply, our economic system is not set up to cope with people who can disconnect themselves from face-to-face society. Those who can WFH receive direct and indirect financial benefits and they should be taxed in order to smooth the transition process for those who have been suddenly displaced.

He further goes on to add that "work from home" is here to stay and so it’s imperative to tax the privileged folk and repatriate their income to those who do not have the luxury of working from home. A “Privilege Tax”, so to speak.

Also, according to the report, a tax drive such as this could fetch the US government $48 billion and help provide 29 million low wage workers with a $1,500 annual paycheck. And while there are a host of logistical issues in undertaking such a massive endeavour, we thought we could take a closer look at the proposal itself.

The whole argument seems to be centred on two tacit assumptions.

a. Work from home is a privilege

b. Such a privilege needs to be taxed

So let’s look at the first assumption. Is work from home, a privilege?

Here’s what research tells you. College-educated white-collar employees are more likely to work from home considering their jobs don’t require a lot of face-face interaction. Take for instance, India’s burgeoning tech industry. If you’re an IT worker, all you need is a laptop and an internet connection and you’re good to go. But if you’re a blue-collar worker, say, a store clerk or a waiter or a factory employee you simply can’t afford to work from home. And this drives a certain wedge in your savings profile. For instance, an average working professional in India can save ~Rs. 5000 a month while working from home. And they can have another 90 minutes shaved off their commute time and do something productive in the meantime.

So the argument goes that the privileged folks are reaping the added benefits of working from home while the rest have to man the frontlines, take added risks and keep exposing themselves to the virus in a bid to keep the economy up and running. If this isn’t a stark reminder of privilege, what is, right?

But then there is a counterargument. Working from home has its downsides too. The added mental stress of having to work alongside caring for children, investments in work infrastructure, the difficulties involved in drawing boundaries between work and personal life. There are all kinds of costs you have to consider. And the positive externalities of working from home — Less pollution, less congestion, fewer accidents and perhaps even productivity gains. The list goes on. So what happens when you offset these costs against the added benefits of working from home? The author of the report dismisses the argument suggesting that the benefits far outweigh the costs but if you ask people working from home, they might have a different opinion.

But then, the Deutsche bank author has another contention. He adds —

The sudden shift to WFH means that, for the first time in history, a big chunk of people have disconnected themselves from the face-to-face world yet are still leading a full economic life. That means remote workers are contributing less to the infrastructure of the economy whilst still receiving its benefits. That is a big problem for the economy as it has taken decades and centuries to build up the wider business and economic infrastructure that supports face-to-face working. If a great swathe of assets lie redundant, the economic malaise will be extended.

So let’s tax the extra savings and mobilize additional resources.

But the application of this thesis seems arbitrary at best. Should we then start classifying the working-class population based on other considerations that could be deemed privileges? What about an individual working a sales job vs an IT employee mostly spending his/her time in the office? As a salesperson, you’re always travelling and using and paying for the economic infrastructure that supports face to face working. You’re on the frontlines all the time. Should the government then tax the IT employee even if he/she is working from the office because of their apparent privilege? Should a part of their income be repatriated to the sales professional because the sales folk assume all the risks?

It’s a slippery slope this. And it could open a pandora’s box of nasty possibilities. Also, as another tax expert wrote — "Remote work has both advantages and disadvantages, but it certainly isn’t hurting the federal government. It is not an undesirable activity to be curtailed by prohibitive taxation. The proposed remote work tax doesn’t fix a problem; it doesn’t even identify a problem worth fixing. It simply enacts a penalty on those able to work remotely."

Even others contest that Deutsche Bank has an ulterior motive here. The bank is heavily invested in commercial real estate and a tax on people working from home bodes well for the company. Nonetheless, the whole proposal seems to be dividing opinion across the board. So we’ll wrap up this story by posing the question to you?

Should WFH be taxed?

Or is the entire thesis bunkum?

Let us know your thoughts on Twitter.

Until next time...

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