Subsidising household services?

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Eric Crampton notes that Peter Dunne views income splitting as a subsidy for “household services” – as he thinks the secondary partner in a relationship should be at home more often.

Ok, well he is right that it is discouraging second earner labour supply, and so will end up with second earners staying at home instead.  But is he correct when he says we need to subsidise household services?

Just yesterday CPW pointed out to me that we don’t tax household services provided in a relationship – even though it is a service.  As a result, it is already subsidised.  In fact, we could argue that we should be taxing the imputed rental value of said services – given that they are part of the inherent structure of the household (and households are effectively just firms).

Arbitrary tangent

In many ways we could say allowing people to form families is a way of “dodging tax” is that something a civilised society such as New Zealands wants to promote!

Overall, I think Peter Dunne has convinced me that we need to not only avoid income splitting – but start taxing people based on how much they clean their own house.  Sure, looking at how I keep my house, this would see a significant fall in my tax burden – but I swear I’m not asking for anything on the basis of self-interest ….

Tangent over

So, in seriousness, we have to ask – why do we have someone wanting to implement a policy on the basis that it will reduce labour force participation by secondary earners?  Does he seriously want society to revert to some sort of 1950′s traditional household mold?  Even if he does, and even if YOU think that this is what society should do – do you think it is right for government to implement policy to achieve such goals?

That my friends is really a bridge too far – no-one, not even economists, have the foresight and the knowledge to say that they should be the ones determining societies institutions.

  • http://offsettingbehaviour.blogspot.com Eric Crampton

    Agreed. Especially as we’re likely to have to start outsourcing some cleaning services because we’re both working.

    This whole area pisses me off to no end. Susan and I reckon that we both have to work to earn sufficient resources to provide decently for our family; both Eleanor and Ira started in at daycare at 3 months of age. And a good chunk of the taxes we pay go to subsidize the folks who think that it’s horrible that any mother should have to go to work before the kid is 2 years old. If our taxes were lower – if we didn’t have to subsidize a whole ton of stay at home moms either through WFF, DPB, or now fxxing income splitting – we might be able to afford to choose to have a single income family. Dunne’s granting of choice to some takes choice away from me. Apparently they count for more than I do in the social welfare function.

  • http://www.tvhe.co.nz Matt Nolan

    @Eric Crampton

    I believe he is targeting the “would vote for United Future” function rather than the welfare function per see ;)

  • JiveKitty

    Ugh, there’s still a vote for United Future faction? Next you’ll be telling me there’s still a vote for New Zealand First faction! Progress is glacial.

  • http://www.tvhe.co.nz Matt Nolan

    @JiveKitty

    Definitely need some new parties to clean out all this dead wood – hopefully with soem good marketing and a damned good public speaker (preferably with good hair, a symmetric smile, and a preferences for sharp grey suits). Give me that party and I’ll have somewhere to vote …

  • Dave Guerin

    Matt, I don’t really care about the income splitting issue, but any tax system will shape society. You state that “no-one, not even economists, have the foresight and the knowledge to say that they should be the ones determining societies institutions”, but taxing individuals is a policy choice, just as taxing households or family is an alternative choice. You can’t put individual tax up above the fray and say everything else is trying to shape society. Every tax decision will shape society to one extent or another.

  • http://www.tvhe.co.nz Matt Nolan

    @Dave Guerin

    Completely agreed – and I’m glad you raised that point.

    At least by focusing on the individual, instead of arbitrary institutions such as the structure of households, the way the tax system functions is transparent.

    Making a mish-mash of the tax system to try and solve “social ills” misses the point that these very policies have unintended consequences – which is why the focus of the tax system should stay on the individual.

    Yes, government choices will impact on society – but the least they can do is to ensure that the unit of taxation remains consistent right. If we make sure the tax is on the relevant agent that makes a “choice” we at least have a clear idea regarding how it distorts activity – and can discuss trade-offs clearly.

  • JiveKitty

    Individual = de facto unit. Target that so as to impact less on people’s choices?

    “traditional” family model/unit provides certain factors which are useful, but it is not the only way of providing such factors. People seem to forget that. Probably in part because it crowds out alternatives due to its already premised position in society.

    @Matt Nolan: If you want a party worth voting for, either incentives and checks and balances need to change in politics, or a specific issues party – with a sunset existence – needs to come along and be viable (I think those in Iceland’s “Best Party” have stated they’ll leave politics once they’ve accomplished their stated goals – not the ridiculous ones! – so hopefully they follow through).

  • http://www.tvhe.co.nz Matt Nolan

    @JiveKitty

    Problem is I don’t seem to agree with any parties on anything at the moment – it is quite a random time.

    Definitely need a new political party with people who dress well – I want politicians who make me think “I would really like to buy that outfit” more than anything else at the moment. I would have an even greater preference for a party that had policies I agreed with – but I don’t see that as a realistic option.

  • Miguel Sanchez

    “So, in seriousness, we have to ask – why do we have someone wanting to implement a policy on the basis that it will reduce labour force participation by secondary earners? Does he seriously want society to revert to some sort of 1950′s traditional household mold?”

    As I said on the other thread, we already have a set of policies aimed at artificially boosting labour force participation by secondary earners. All thanks to the last government, under the mistaken notion that it would be good for the economy (spreading the workload across more part-time workers – sounds very…. French) or that it would strike a blow for feminism (yay, forced into work by the tax system! Germaine Greer would be so proud.)

    But then… “some sort of 1950′s traditional household mold”… there’s that contempt again. Single-income households were the common not just in the 1950′s, but in the 1960′s, the 1970′s, the 1980′s and the 1990′s. They’ve also been quite popular in the 2000′s and 2010′s, despite the financial disincentive.

    Back to your first point: we don’t tax household services because it would be impossible to collect, not for conceptual reasons. So, completely irrelevant to the issue of income splitting.

  • http://www.tvhe.co.nz Matt Nolan

    @Miguel Sanchez

    “As I said on the other thread, we already have a set of policies aimed at artificially boosting labour force participation by secondary earners”

    Such as WFF, and I agree with you that these are potentially misguided in the same way.

    The ONE potential thing they have in favour of them is the belief that there is “persistence” in employment – so there might be “multiple equilibrium” for work, and we might believe that allowing second earners the opportunity to get some work experience leads to a better outcome.

    However, I am not saying I think that.

    “But then… “some sort of 1950′s traditional household mold”… there’s that contempt again.”

    I have no contempt for that household model – in fact in many ways I quite like the idea of it. BUT, I don’t like the idea of policies that are established to try and make a certain household model – my view is that households should be formed endogenously, not as a target of policy. I agree with you policy does influence this – but it shouldn’t be a goal per see.

    “Back to your first point: we don’t tax household services because it would be impossible to collect, not for conceptual reasons. So, completely irrelevant to the issue of income splitting.”

    We implicitly subsidise something because it is difficult to collect the tax, yes. However, we should take that into account when setting other taxes shouldn’t we? Just because it is costly to collect does not make it irrelevant ;)

  • Miguel Sanchez

    “I don’t like the idea of policies that are established to try and make a certain household model”

    Then you should like income splitting – it’s completely neutral as to the form of the household.

    “However, we should take that into account when setting other taxes shouldn’t we? Just because it is costly to collect does not make it irrelevant”

    OK, let’s set a higher GST rate in Northland and the East Coast. We can’t tax them for the pot they smoke there, but we can ping them in other ways. ;)

  • http://www.tvhe.co.nz Matt Nolan

    @Miguel Sanchez

    No tis not. It treats a couple living together different to two friends living together – how very strange ;)

  • Miguel Sanchez

    As I said on the other thread, in principle I’d support income splitting between friends, as long as they both consent to the arrangement – consent being a major and not at all arbitary feature of marriages / de facto relationships.

  • http://www.tvhe.co.nz Matt Nolan

    @Miguel Sanchez

    Ahhh I see, very good. I was actually having a conversation with someone the other day where we suggested we could have a civil union – as long as we don’t mind each other constantly cheating with women … but I digress.

    This is all very interesting, as it illustrates to me that people are unhappy with the poorly targeted nature of a progressive tax system – maybe it is a time for change towards a more targeted, transparent, system.

  • http://offsettingbehaviour.blogspot.com Eric Crampton

    I want to be able to income split with Ira (age 2.5); Susan can income split with Eleanor (age 0.25).

  • http://www.tvhe.co.nz Matt Nolan

    @Eric Crampton

    How would it make you feel if I told you that there had been suggestions around that …

    Personally, I reckon flat tax and pay everyone, even babies, a minimum income. It would be pure rock.

  • Gregor W

    @Eric Crampton

    Putting the nippers out to work shows a dedicated commitment for laissez faire capitalism. My hat goes off to you, Sir! ;)

  • Miguel Sanchez

    @Eric Crampton
    Don’t you realise that the individual is the appropriate economic unit? Ira should sort out his own source of income rather than freeloading off you.