- WFH employees might still go out to lunch and support the local economy.
- WFH employees may still need to use child care services in their community.
- Traffic in many cities, such as Los Angeles and San Jose, partly exists because there is insufficient infrastructure. So, aren’t WFH employees savings dollars by reducing the need for more highways and maintenance of roads?
- WFH employees are driving less so contributing less to greenhouse gas emissions that create climate change.
- WFH employees might find it easier to contribute time to local community needs such as helping at the public school and cleaning parks.
The concept though of measuring income by economic considerations includes the benefits of growing your own food and living in a home you own. Recent OMB tax expenditure reports
list the fact that our federal income tax does not tax the net imputed rental income of owner-occupied housing as the second largest tax expenditure (#60 in the report). There is no specified exclusion in the Internal Revenue Code for this item, such as there is for the largest tax expenditure – the exclusion for employer-provided health care. To help understand the new imputed rental income item, the OMB provides:
“Under the baseline tax system, the taxable income of a taxpayer who is an owner-occupant would include the implicit value of gross rental income on housing services earned on the investment in owner-occupied housing and would allow a deduction for expenses, such as interest, depreciation, property taxes, and other costs, associated with earning such rental income. In contrast, the Tax Code allows an exclusion from taxable income for the implicit gross rental income on housing services, while in certain circumstances allows a deduction for some costs associated with such income, such as for mortgage interest and property taxes.”
The Joint Committee on Taxation doesn’t include this in their list of tax expenditures. Per the JCT, the “measurement of imputed income for income tax purposes presents administrative problems and its exclusion from taxable income may be regarded as an administrative necessity.” JCT also notes (page 5
) that if this imputed income were allowed, then all mortgage interest and taxes on the home, as well as repairs would be deductible. Of course, providing lots of tax breaks for owner-occupied housing including the gain exclusion, without any offset for not including the imputed value in income is not accurate, but as the JCT notes, administratively sound as measuring the value of the income would be challenging.
DB suggests a WFH tax of 5% of the employee’s salary with the revenue used to help displaced workers. Another perspective on the tax is not only displaced workers but smaller business footprints by employers when more of their employees work from home. I suspect we’ll see a lot of office vacancies after the pandemic with cities facing issues of abandoned buildings, less need for public transit and in some areas, less economic activity for local service businesses. Cities will need to find ways to adjust to this and of course are already facing these issues during the pandemic.
So, an interesting idea for a WFH tax and I think it also highlights, along with other topics in the DB report, the need to continually examine our tax systems to be sure they reflect the ways we live and do business today and to ensure they meet principles of good tax policy.
What do you think?