Sometimes economics blows your mind.
There’s an idea in economics of what fair taxes should look at. There are several concepts of fairness, including vertical and horozontal equity. We’ve talked about why there are progressive marginal tax rates before.
Back to the concept that messes with your mind.
“Ideal” taxes are termed Haig-Simons taxes (technically it’s taxes under the Haig Simons Income Definition… but that’s a mouthful). These suggest that if unpaid work is equivalent to paid work, it should be taxed equivalently. The idea being that by its nature, the tax code discourages work that produces income (generally for elastic secondary earners) even though it should be treating it neutrally. So there shouldn’t be a tax advantage to cleaning your own floors–or rather, there shouldn’t be a tax penalty to paying someone else to do so.
Would SAHP be willing to be taxed at 150K or whatever the going rate on salary.com is that year? Probably not. Not what we call politically feasible.
So what we do instead is dependent daycare credits or tax exemptions for childcare, but they only cover a fraction of daycare most places and they have their own problems with changing people’s behavior. And that’s only daycare. What about the tax advantage to building your own deck rather than paying someone else to do it?
Of course, the tax system is also used to change behavior on purpose– to decrease negative externalities (ex. second hand smoke) and increase positive externalities (ex. giving to charity), and sometimes bleeding heart liberals add a little paternalism in there to keep people from harming themselves (libertarians say let them harm themselves!) So those uses of the tax system are not included in Haig-Simons.
What do you all think? Given that we tax labor market production (you know, to fund defense and other public goods), is it unfair to tax labor market production but not home production?