On November 10, 2020, Deutsche Bank (DB) released a report, Konzept #19: What we must do to rebuild. Per DB, the report presents “ideas for how economies, businesses, and societies should rebuild from the pandemic. From changing the way we stimulate labour markets, to implementing digital currencies, and even taxing those who work from home, this Konzept is designed to spark the most important of debates. Some of our ideas may seem radical, but we hope they will inspire decision makers as we rebuild from this bracing and tragic period.” Topics include climate change, connectivity, fate of shopping malls, and more.

DB also suggests the need and appropriateness for a tax on employees who work from home after the pandemic, to be paid by the employer. Per DB, the pandemic has resulted in about 5 to 7 times more people working from home and many will continue to (and about 50% will want to) continue to do this.
Why a tax? DB suggests what can be described as some negative externalities of working from home. Per DB (pages 32 to 34): 
“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.” 
DB also notes the savings WFH employees gain such as commuting costs and costs to acquire and maintain clothing. They also save the time for commuting. 
But what about counterarguments including the provision of positive externalities, such as:
  • 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?