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.

Pay gap data and hourly averaging

I've just posted an article on Medium explaining why the recently published tax gap data also acts as a step towards hourly averaging.

Essentially, the data employers require to report on the tax gap is the same as that required for hourly averaging.

Check out the piece here.

Are Robots and AI going to cause mass unemployment?

Futurists, Utopians and Basic Income advocates seem keen to emphasise that we are entering a new economic era that will change everything. This is the age of the robots, where machines and machine intelligence will make most, if not all, human labour redundant.

This sounds great in many ways, but I think we shouldn’t get too far ahead of ourselves, for several reasons.

Will this guy be taking the jobs of table-tennis players?

Firstly this clearly is not in the process of happening at present – the UK has morepeople in employment than ever before (over 32 million – including 75.1% of those 16-65). Productivity is not increasing rapidly, which might imply major technological advances.

Secondly, there are clearly plenty of useful things for humans to do and so we don’t need to entertain this argument until robot slaves really are taking care of all our needs and our (reasonable) desires.

Revolution or gradual evolution?

I don’t doubt that technological chance will continue to alter workplaces and lead some jobs to change radically and even disappear entirely. We see this all the time: docker jobs lost to containerisation, telegrapher jobs lost to radio operators, radio operators lost to digital communication. The Luddites rioted against weaving machines. Change can be fast-paced and while it generally benefits society overall in the long-run by making us all richer, there are sometimes lost skills and in some cases, great hardships for affected individuals and communities.

I can certainly envisage computer technology, driven increasingly by machine learning, taking over more and more tasks currently done by humans. However, I don’t expect that all jobs will be taken overnight, or even for the foreseeable future.

A recent McKinsey report draws the conclusion that only about 5% can be completely automated in the short-to-medium term. Most workplaces will of course be revolutionised if the promised developments really do occur, with jobs changing focus along the way. However, this does not imply there will be mass unemployment.

Put simply, there are plenty of useful things that humans can do. New jobs spring up all the time, often relating to the new-technology. The idea of someone working in “social media” for example would make no sense to someone fifty years ago. More complicated machines also need more expert engineers to create, monitor and maintain them.

Other jobs can also be done by more workers to better effect. Many tasks that are done on a voluntary-only basis at present could become professions. People could spend more time caring for the disabled, for example, including spending time with them rather than taking care of their basic needs. A favourite example of mine is that class sizes in schools and Universities could be reduced by a half or a quarter by doubling or quadrupling the number of teachers.

Resource limits, supply and demand

A further constraint on the computerisation of everything is that machines require power and materials. If machines become more capable and ubiquitous then it may be that the earth’s resources struggle to keep up and the prices of machine inputs increase. On the other hand, if people start losing their jobs then they will look for work elsewhere.

This process will constantly tip the balance back towards employing humans as they get relatively cheaper while machines get more expensive. There may end up being jobs that could be done by machines that humans can do more cheaply, at least when consumer preferences (for example to interact with a human rather than a machine) are considered.

As mentioned above, there seems to be plenty of demand for labour in the UK and plenty of people who would be keen to come to the UK to work. I don't believe this is a UK phenomenon either--other countries with increasing populations seem to find work for their populace to do.

Is hourly averaging redundant?

Some may suggest that my work-based proposal for fairer taxation and benefit calculation are irrelevant because very soon there will be no work to do. I completely disagree that the change will happen so quickly that it would not be worth seriously considering the proposal.

However, to the extent that revolutionary labour-market change is coming, I would argue that my proposals is the best available way to manage this change in a fair manner.

If we see work as a good the availability of which is gradually being reduced then it would need to be rationed out during the period of reduction. This can be done very easily with hourly averaging by slowly reducing the maximum amount of hour credits that can be claimed per week/month. Those who work longer than the maximum will be taxed at a higher rate for those additional hours, which would then give them an incentive to work fewer hours, allowing others to pick up the slack. This shares out the work without banning people from working longer if it still suits them and their employer (though with the advantage that one or both parties will be paying a higher rate of tax or pay for the privilege).

Conclusion

To answer the question at the outset, I don't think Robots and AI going to cause mass unemployment any time soon. Technological advancements will change the labour market, as will changing tastes and environmental depletion.

However, I want to emphasise two things from this. The first is that we don't need a Universal Basic Income on this basis any time soon. Furthermore, instead of being a problem for my hourly averaging proposal, technological developments make it more attractive to manage such changes in a fair manner.

Working time exactness

My hour credit proposals make use of hour credits, each of which is received when someone spends an hour. I'm sure some people doubt the feasibility of my proposal on the basis that employers wouldn't really control the time that workers to the required level of exactitude.

To challenge that I would usually point to time-card systems and computer-log-in-programmes that are used by many employers. I might also mention that the official leaving time where I work is 17.18.

But Morley College have gone a step further, A recent advert for an administrator there specified that the job is 0.700443 full-time-equivalent. So if a full week there is 38 hours a week then this job is 26.616834 hours per week, or 26 hours 37 minutes and 6 seconds.

Perhaps the time divides more neatly into whatever their specified full-time hours happen to be. However, I thought it was an interesting case, perhaps because of its apparent ridiculousness.