Every once and a while you come across a farcical idea that clearly wasn’t meant to be taken seriously, but for whatever reason you allow yourself to go down the proverbial rabbit hole and play it out in your mind and see how far you can take it. That was the case this morning when browsing through Twitter I stumbled across a tweet poking fun at the president’s most recent attempt to pivot away from his campaign pledge that Mexico would pay for the border wall, which the president now says will be paid indirectly through the newly revised trade agreement between the United States, Mexico, and Canada, or “UMCA”. Peg Lepetit on Twitter jokingly inquired if the same logic could be applied to paying taxes.
This got me thinking, why not!? Taxes, money more specifically, is just medium for trading goods and services, conceptually the value of the money taxed on our paychecks corresponds to some good or service produced or provided by the government elsewhere in society with a corresponding value of its own. So what if instead of paying taxes you provided goods and services for the same amount of value. After all, as the cliche goes, “time is money.”
So, I started thinking how would such a scheme even work in practice? Well, first I assumed you have to calculate how much tax you would otherwise normally have to send to the Treasury, and then convert that into hours of work needed to served to balance out what you owed the state. I looked at the most current available data on median income across the United States, which was from September 2017, which states that the median income was $59,039.00. Then I calculated what just the federal income tax on that would have been (setting aside payroll taxes, which go to fund Entitlement programs). The effective tax rate on that amount of income would be 10.65%, and thus resulting in a tax bill of $6,288.00. Now, to convert it into hours needed to work, I figured dividing the total amount by the federal minimum wage of $7.25 was the most equitable way to come to a universal number of hours needed to work — I’ll get to complications in a second — and that gave me a total of 867.31 hours.
Now, here is where it gets even more interesting. There are approximately 8760 hours in any given year, and 867.31 hours amounts to 10.10% of that time, which is coincidentally really close to the effective tax rate this hypothetical American would pay normally. So conceivably this person could use this scheme to contribute 10.65% of their income or 10.10% of their time in a given year to the government. Maybe they might choose to give up their time rather than money, since at 10.10% it consumes less of the respective commodity than the alternative. The question then becomes from the perspective of the citizen what’s better for them, and then what would be better for the overall economy and country as a whole. And that is where you start running into more complicated issues.
The first is how would you allocate that 10.10% of your time. Unlike taxes that have a specific deadline when they are due to the IRS before penalties are applied, paying your dues to live in a civil society (or uncivil society, depending on your point of view) with time would require much greater coordination between you and the government, beyond just writing a check. 867.31 hours is about 5.16 weeks of the year. And obviously you couldn’t have everyone who opted for this option in lieu of paying taxes perform their service at the same time. For some people this option certainly has its benefits though. Allowing them to work and keep more of their money, which increases their purchasing power, and, if they can be matched up with a tasks that are socioeconomically useful, offers them job experience and produces a tangible social good. Whereas it is difficult sometimes to really account for what you get or provide when it comes to taxes. For others not so much.
And this kind of gets to the nature of time. Time certainly has some advantages and disadvantages as a commodity over money in terms of how and where it can be spent, and unlike money it cannot really be saved: you either use it, lose it, or waste it away. Thus for practical reasons this could mean that a lot of potential productive work just does not get done, because you aren’t able to align resources with your production capacity. (Though the same could be said to a lesser extent about money too. One of the major shortcomings to President Obama’s stimulus package was that there really weren’t that much “shovel ready” projects ready to hit the ground running, and thus the money could not really be injected into the economy to act as a form of Keynesian stimulus.) But at the same time the finite nature to it also makes it extremely valuable: no matter the amount of money you have, there is only a finite amount of time in a day, so using it very efficiently and not wasting it is incredible productive.
One of the obvious drawbacks to such a scheme is a potential mismatch in terms of quality of work provided in lieu of taxes taken. While everyone has the same amount of time at their disposal, some people’s time is more valuable than others, and there would be situations where in which our society, economy, and overall happiness might be better served with some people’s money rather than their labor. This again centers on the scarcity of the resource. If we have for example a very highly skilled and highly paid citizen who, instead of paying taxes, opted to provide their time and labor to whatever end the government identified, it’s highly questionable the available work needed at any given moment would be the most efficient use of their time. It could be that the value of their tax is functionally worth more in money than it is in time. We would much prefer surgeons performing critical life-saving surgeries than picking up trash or cleaning highways for example; and the money the government earns off of taxing their income can probably go much further in benefiting everyone, which is ultimately the purpose of taxes anyway. Say nothing of the effect labor, physical or mental, has on the human body as opposed to just taking some money, even a considerable amount of money, out of your paycheck. The declining marginal utility of money is real: after a certain point it really does not matter how much money you have, as most people are not able to spend it (must be nice!) and increasing marginal tax rates on income does not have the same kind of economic drag as increasing working hours.
Now, it should be said that I made a huge assumption at the onset in assuming the tax rates would remain the same. There is no reason why we should tax time and money the same, after all both have different properties that need to be assessed. This opens up the much more complicated issue of how we treat work. Currently, we treat all wages the same: a dollar earned by a janitor in income is treated just as valuable a hedge fund manager, they both pay a base 12% on the first $9,225 of their income; however, conceivably we wouldn’t treat their time as worth the same. (Personally, I don’t know whose time I value more, I suppose it depends on what value I am extracting out of it at the time, which is highly circumstantial.)
One other thing that this idea got me thinking about was the nature and effect of credits, deductions, and refunds in our tax structure. Currently the tax code is riddled with various mechanisms that adjust taxable income, any and everything from being able to deduct interest payments on student loans to credits for purchasing certain items, to even how it effects your divorce proceedings. All of these things are meant to either help individuals out financially, like the Earned Income Tax Credit, or create incentives certain behavior, for example encouraging people to buy energy efficient cars. How the government might treat time as a taxable resource would be much different. You could still directly try to support people who are struggling, by lowering their total taxable amount of hours, a single-mother with several children for example; and you could still encourage certain behaviors, such as offering hour credits for certain related activities, for example volunteering at a local soup kitchen. One thing you certainly could not do however is get a refund, as you cannot pay people in time; and right now much of our tax systems is designed as an indirect form of social welfare spending.
So, yeah, interesting idea, I think. Some advantages but also some major drawbacks. Ultimately, the very practical qualities of money outweighs whatever the benefits time has as a substitute for me. Still, fanciful ideas like this and exploring their real world ramifications do have the effect of illustrating a lot of the inner workings of current system, I suppose.