Acton Institute Powerblog

Deutsche Bank’s work-from-home tax is economic insanity

(Photo credit: Public domain.)

As if 2020 could not get any worse, this week intellectuals unleashed another pandemic: a new proposed tax. Deutsche Bank suggested that the government lay a 5% “privilege” tax on employees who work from home, on the grounds that they “disconnect themselves from face-to-face society.” This misguided scheme would engage in useless social engineering, disregard the needs and wishes of female employees, harm vulnerable workers, require a massive invasion of privacy, and subsidize failing business owners to cut low wages even further. More vexing yet, if it wished, Deutsche Bank could create even more funds than its proposed work-from-home tax would raise simply by making one corporate decision.

The facts are clear: People enjoy working from home and wish to continue doing so. Between 2005 and 2018, the number of people working from home increased by 173%, totaling a meager 5.4% of U.S. workers. The COVID-19 pandemic and its associated lockdowns swelled their ranks to 56% of the U.S. workforce, 47% in the UK. Both productivity and job satisfaction increased. A Cisco report issued last month found that 87% of workers globally would like to continue working from home, at least some of the time.

Deutsche Bank sees this as an impending catastrophe. “Remote workers are contributing less to the infrastructure of the economy whilst still receiving its benefits,” its new report, titled “What we must do to rebuild,” states. “Remote workers should pay a tax for the privilege.”

The section titled “A work-from-home tax” by Luke Templeman envisions a 5% “privilege” tax that works as follows:

[T]he tax will only apply outside the times when the government advises people to work from home (of course, the self-employed and those on low incomes can be excluded). The tax itself will be paid by the employer if it does not provide a worker with a permanent desk. If it does, and the staff member chooses to work from home, the employee will pay the tax out of their salary for each day they work from home. This can be audited by coordinating with company travel and technology systems.

The tax rate? Those who can work from home tend to have higher-than-average incomes. If we assume the average salary of a person who chooses to work from home in the US is $55,000, a tax of five per cent works out to just over $10 per working day. That is roughly the amount an office worker might spend on commuting, lunch, and laundry etc. [sic.] A tax at this rate, then, will leave them no worse off than if they had chosen to go into the office. …

A tax at this level means that neither companies or individuals will be worse off. In fact, companies may be far better off as the savings from downsizing their office will more than make up for the cost of the WFH tax they will incur.

This new levy will create a new $1,500 annual transfer payment to the 29 million workers who cannot work from home and who make less than $30,000 (but do not receive tips). This would amount to €1,500 in Germany and £2,000 in the UK. It “makes sense to recognise that essential workers that assume covid risk for low wages,” the report states. “Those who are lucky enough to be in a position to ‘disconnect’ themselves from the face-to-face economy owe it to them.”

The work-from-home tax is a penalty in search of an infraction. The report offers no evidence that telecommuters spend less money than those who work in traditional settings. They simply spend it differently. Rather than purchasing five lunches at a downtown bistro, they may splurge for a family meal once a week. They may use the money they would have spent on childcare to pay for an annual vacation. They do not contribute less to the economy or perpetrate some antisocial “disconnect” from humanity; they simply choose to spend their money on their own preferences rather than those of the government. This proposal amounts to another form of the broken window fallacy, identified by Frédéric Bastiat in his 1850 work That Which is Seen, and That Which is Not Seen.

The government has no compelling interest in punishing telecommuters or funding brick-and-mortar employees. However, making it more difficult to work from home harms working women, who have told multiple surveys that their greatest desire is the flexibility to create a more satisfying work-life balance. Working from home, without paying $10 a day for the “privilege,” gives employers another tool to empower female employees.

For others, working from home is anything but a “privilege”; it may, however, be a necessity. Differing personality types have been understood since at least the second century after Christ, when the Greek physician Galen of Pergamon (c. 129-216 A.D.) classified the four temperaments into categories that persisted well into the Middle Ages: choleric, phlegmatic, sanguine, and melancholic. While working from home does not benefit extroverts and highly social people, circumstances may dictate they must work from home. Employees may choose to work from home even after a government lockdown order lapses if they have comorbidities that put them at greater risk of dying from COVID-19. While avoiding a breathless, lingering death benefits the worker and his or her family, this hardly constitutes “privilege.” Staying in a home office may be necessary to care for a sick child, or it could eliminate an otherwise arduous trip for a disabled worker. An impersonal tax bureaucracy cannot take account of any of these motivations or exigencies.

Although the tax would harm women and the vulnerable, it would do nothing to help the poor. A new government handout would merely subsidize business owners to cut low-income workers’ wages even further. After all, if the employee receives a $1,500 check from the government, the owner could cut his (or her) wages by $1,500, and the worker would be “no worse off” than he was before. This allows the owners to continue paying low wages, or to keep a failing business alive a bit longer, at the government’s expense. The money may lull employees into remaining stuck in a low-paying job rather than pursuing a more demanding position that would increase their productivity. Both halves of the proposal would fail to meet their stated objectives.

“This would break just about every principle of good tax design and is one of the worst ideas I’ve ever heard,” writes Julian Jessop of the London-based Institute of Economic Affairs. “It would be unfair, distortionary, inefficient, impractical – and a bureaucratic nightmare.” Jessop catalogues some of the Orwellian logistical measures necessary to calculate the WFH tax:

Indeed, who on earth will keep tabs on all this? Will people have to wear electronic tags, or is there a new role here for “Track and Trace”? Will tax inspectors snoop into people’s homes? Shouldn’t people then be able to claim more of their household bills as an employment expense?

Aside from being unnecessary and unworkable, there is a simpler solution to the “problem” of raising government revenue to assist essential workers – and it does not require the government to pass any new legislation. It lies entirely in Deutsche Bank’s hands.

Deutsche Bank, although it is a foreign business, received $354 billion in bailout funds from U.S. taxpayers during the Great Recession. DB ranked ninth among “institutions with the largest total transaction amounts (non-term adjusted) across broad-based emergency programs,” according to a 2011 Federal Reserve report.

If Deutsche Bank would refuse to take multimillion-dollar payments from foreign governments to compensate for its insolvency-inducing errors – or restructure its business practices so it would not have to rely on bailouts if its leaders miscalculate – it would produce seven times as much revenue as its proposed “privilege” tax. Moreover, it would strike at the greatest form of privilege: the power to fail in your line of work, defraud your investors, inflict international devastation on the economy, and offload the cost of your poor choices onto the suffering populace your practices helped impoverish.

This proposal would solve one of the chief problems contemplated by its own report, which opens by proposing yet another set of government transfer payments and economic interventions to “save capitalism” from “populist” backlash fueled by “the anger of the youth.” Socialism enjoys its greatest popularity among those raised in the shadow of the subprime mortgage crisis, when government incentives, immoral business practices, and inept economic policies triggered the greatest wealth contraction in decades. Young people, who overheard their parents struggling to pay their bills while the firms that fomented the recession received rich government subsidies, understandably joined Occupy Wall Street protesters in asking, “Where’s my bailout?”

Deutsche Bank could remove this cause of offense by forswearing all further government bailouts. We await their response. In the meantime, people of faith should recognize that, arguably, the mere existence of government bailouts causes taxpayers to share in the sins of others by consent or provocation. They represent another way in which big government is a near occasion of sin.

Deutsche Bank would go further toward accomplishing it purported objectives by keeping its grasping hand out of the public till, rather than brainstorming inventive-but-comparatively-paltry ways to get more people to join them. An ounce of prevention is worth a pound of cure. Or as DB might put it, “Those who are lucky enough to be in a position to ‘disconnect’ themselves from the economic consequences of their own decisions owe it to us.”

Rev. Ben Johnson

Rev. Ben Johnson is Executive Editor of the Acton Institute's flagship journal Religion & Liberty and edits its transatlantic website.