Wednesday, 27 March 2019

Maine tax proposal: Working hours, effort and desert

I was interested to discover that a Republican legislator in Maine has proposed that overtime payments should be exempt from taxation. Its interesting to note why he thinks it would be a good idea and the links to my hourly taxation proposal. Its proponent, Chad Grignon, is quoted on a local radio station:
I submitted this bill on behalf of all working Mainers who put in more than 40 hours a week and deserve to take home more of what they earn. That being said, working overtime should not be viewed as something we wish to see discouraged. In my opinion exempting overtime pay from taxation should reflect the sacrifices that working Mainers make going beyond the 40-hour threshold.

The word that sticks out for me here is deserve, perhaps because I've been teaching about desert theories of economic justice this term. Why is it that people who work longer hours deserve more (and to be taxed less) than those who work fewer hours? The theory that most obviously supports this view is effort desert theory; people who put more effort into their economic activity deserve more than those who put in less.

Effort desert theory, associated with philosophers like Wojciech Sadurski is a very progressive theory, for three reasons:
  1. Talents shouldn't make a difference. Some people find it easier to be productive than others. Effort theory says people should be rewarded for their efforts relative to others, not how successful they are.  
  2. Gifts shouldn't be allowed. If income should relate to effort put into the economy, then people shouldn't be able to get money without putting in the effort. Those who got their wealth as a gift from their ancestors should then face punitive tax rates.
  3. Investment income isn't deserved. People who generate income from investments rather than working aren't deserving--they aren't expending effort. So landlords (except when they are making improvements or providing services) aren't deserving. 
The Maine proposal, however, isn't obviously progressive; it is a reduction in tax for a select group. This would then leave the state with less revenue to assist the poor. However, perhaps this is actually progressive to tax some people less if they are working long hours for it.

Perhaps what this latest proposal picks up on is that there is a group in society that is often ignored by both the left and the right--people who work very long hours for low wages. Because their hard work gives them a reasonable total income they might not qualify for much assistance from the state. Some on the left might not like their materialist attitude as well. The right ignores them because they aren't talented and they generally don't want to give people extra support.

Effort and hours spent working

Time spent is one way to measure effort, particularly when the work you do is directed so workers aren't able to vary how intensely they work; the intensity is fixed by the nature of the work.

My hourly-averaging proposal might be of interest to the Maine legislature as this calculates people's tax-rate according to the number of hours worked. Those who work longer hours to attain the same pay would be taxed at a lower rate. It would apply the principle not just to a limited case of hourly-paid workers who cross a threshold, but on a sliding scale across all workers.

Practical questions 

There are of course practical questions with both my proposal and Rep. Gringon. How do you reliably measure people's hours? Well, his bill points out that employers are required by law to pay the overtime compensation to the employee. So the legal system is already taking account of the number of hours that people work. In this case, presumably, the worker has an incentive to insist on their rights against their employer whereas there is a problem for the Maine proposal and mine in that the employee and employer could collude to overstate the number of hours they work.

Getting around this practical problem is difficult but not impossible. Monitoring employment contracts, pay-rates for different kinds of work, and investigating unusual cases could do a lot of the job. Furthermore, employers are increasingly using technology to monitor workers. If the authorities had access to this information then it would be easy to verify the amount of time people spend working.

Prospects for hourly taxation

This is just the latest example that shows the relevance of time to distributive justice; numerous forms of tax credits being an obvious existing example. Hopefully people will take greater note of this as my hourly averaging proposal is the most thorough application of the principle that people who work longer hours should be taxed less.