First of all, I have to admit, I am not a professional economist, tax-expert or politician. Even though I do have basic economic education, I might miss some obvious things. Nonetheless, I think that the idea of additional tax based on where people decide to work from (which is a `telecommuting` in this case) is not a very sound suggestion
Like many other people, I am working from home now. The biggest difference in my case is that I was working from home before and I intend to work from home in the future. I don’t mind (in fact, I strongly support) seeing my colleagues once a week or several times a month, but I don’t think it always makes sense to be collocated to work effectively.
This morning I saw the story posted by the BBC: Deutsche Bank: Tax working from home ‘to support vulnerable jobs’, which suggests introducing a new 5% tax for those, who choose to work from home. I am not going to copy the story here, please feel free to check it yourselves, but I’d like to highlight that allegedly, there’s some report, written by someone in Deutsche Bank that, allegedly suggests that this tax would be a good idea, because (quote from the BBC story) “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.”
I personally think it is not well-thought suggestions. I tried hard to find the original report, but I couldn’t, which raises some questions. I have a reasonable doubt about the credibility of this paper and I can think it probably not going to be peer-reviewed scientific research, if the BBC story be accurate in relaying the findings of the paper: real scientific papers seldom that absolutist in their suggestions, they are always cautious of the potential shortcomings of the research itself, data interpretation and researcher own biases.
For example, while I am thinking that tax for the remote workers is a bad idea, I would not rule out the possibility that “introducing a tax for the remote workers can create certain benefits during the pandemic situation to support vulnerable jobs”, or “in big cities those who work remotely tend to spend less money on commuting and dining, which creates certain imbalances”. Still, the suggestion that this tax is certainly needed and it should be 5% looks a little bit premature.
Unfortunately, the BBC story falls short on assessing the other side of the story, i.e. why this proposed tax may be a bad idea, so I will try to cover this gap. My argument will be based on the fact that the only criterion for the suggested tax was that someone would choose to work remotely, while similar office workers or those who choose to work as self-employed are not proposed to be taxed. It should be a fair argument, as, with the progressive tax system we already make sure to tax more those who earn more.
“Those who work remotely may earn less and spend more than their office-located colleagues”
It seems that the justification for the tax is that those, who work remotely are spending less than those who cannot work from home. Well, it is partially true. Indeed, companies who have remote workers (not necessarily individuals!) are spending less on office costs. Sometimes companies spend less on the worker equipment as well. On the other hand, employees can actually have some extra costs to cover. A typical remote worker will have to pay for:
- extra electricity and heating costs;
- additional costs for faster and more reliable internet connection, including supporting emergency connection channels should the main line become unavailable;
- remote worker will (at least partially) buy equipment and stationery out of their own pocket;
- almost always remote workers will use their own furniture, paying for it out of their own pocket.
This is just of the top of my head, I didn’t dig enough to find some other hidden costs of the remote work for the employee. In addition to that, when one works remotely for the New York-based company, in most cases she/he would not get the same salary as someone in New York, but the lower one. Those who work remotely may earn less and spend more than their office-located colleagues. I did not make any reliable researches in this area, but it was the case in my own experience.
“Many remote workers before the pandemic would choose working from the local cafes or co-working areas, essentially incurring more costs than office worker would, while supporting local community.”
The premise that those who work from home would spend more if they chose to work from office is also not universal — in cities like Cambridge, one pays almost nothing for the commuting as most of the workplaces are either in walking or cycling distance. And while not spending on transport less, most people working from home tend to work longer hours, meaning more (taxed!) revenue for the companies.
Many remote workers before the pandemic would choose to work from the local cafes or co-working areas, essentially incurring more costs than office worker would, while supporting the local community. We even haven’t touched the fact that office workers may have subsidised or even free food, drinks and fruits! But it doesn’t stop there — in my experience, those who work from home tend to need less time off or sick days than those who work from the office, which, again, helps companies to generate more revenue. And, in my case, it was not because I got sick less, it was because I could still safely work from home, without spreading the virus (I did self-isolate when sick before it became mainstream and was genuinely pissed off when other would not do it).
Let’s consider what benefits for the general public the remote workers would create:
- decreased load on roads, parking spaces and public transport (more environment friendly!);
- people can stay local, supporting local communities;
- remote working has the potential to decrease unemployment in remote and less-developed areas;
- by taking less sick days remote worker create smaller load on the public funds;
- people staying home during daytime can contribute to a neighbourhood safety by being able to see and report if something goes wrong (many burglars are happening during daytime).
By choosing (and being able to) work remotely, one actually makes good for the overall society. So not only companies but the general public also benefit from people working remotely! Making them pay extra taxes for this would not be fair at all, would it?
“If the tax were to be introduced I would just switch back to the office-based work, since I don’t live in the big city. I would avoid tax, while being less productive for the company, generating some extra load on the road and potentially taking more sick-days, if that’s what you want”
I am not done yet. If the tax was to be introduced I would just switch back to the office-based work, since I don’t live in the big city. I would avoid tax, while being less productive for the company, generating some extra load on the road by cycling and potentially taking more sick-days (generating extra-load on public funds), if that’s what you want. But that is hardly the only option — some people would just decide to relocate in a more tax-friendly place or switch to self-employed tax-regime, essentially either paying fewer taxes or not paying taxes in the country at all. Again, if that’s what you want.
On the other hand, I do understand that the workforce is changing and we may need some changes for a greater good. Indeed, it should be clear by now that those who benefit the most from people working remotely are not employees, but companies. What if we consider taxing them a little bit extra? It might be fair, as companies are certainly saving a lot when keeping people out of their offices.
Please comment, spread and share — I hope to spark a wider discussion and make a proper review of what is the problem we’re trying to solve by this new tax and what would be the right way to solve it.
Originally published at http://aqaguy.blogspot.com on November 11, 2020.