Taxing a Professor's Privilege
I've been reading Thomas Piketty's "Capital in the Twenty-First Century." You'll have to wait on my thoughts on the book until they're a bit more fully formed. As I've been reading, though, I keep returning to a question I heard at an economics conference a couple of months back: If we did implement a wealth tax, should it tax tenure?
Professorial tenure is, after all, a valuable asset. As long as you show up and teach your classes, and you don't make passes at your students or steal from the department's petty cash drawer, you can draw a paycheck for the rest of your working life. And since the abolition of mandatory retirement ages, that working life can be as long as you like.
Ah, you will say, there are risks: Your school could go out of business, or you might get ill and be unable to work, or inflation could eat away at the value of that paycheck. Just so. All assets are risky. That doesn't make them worthless; it just means that the price has to take the potential downsides into account.
Why single out professors? you ask. Isn't this just more academic-bashing? You're quite right: We shouldn't single out professors. Everyone with civil-service protections or similar employment guarantees should probably have that asset taxed.
Some of you are no doubt now rushing to your keyboards to pen a nastygram about me, or about academics and civil servants. If so, you are missing the point of this thought experiment, which is to illustrate the somewhat arbitrary ways in which we define "wealth." The right to work at an enjoyable job for the rest of your life is extremely valuable -- in these uncertain days, probably more valuable than many people's homes. But one generates an annual property tax bill, while the other doesn't.
Professors and civil servants implicitly recognize the economic value of this deal; whenever someone suggests abolishing lifetime job protections, they rush to argue that they have agreed to lower pay in exchange for these privileges. That's not always true, in fact. Also overlooked is that the people who do this are effectively engaging in tax arbitrage: exchanging taxable income for untaxed guarantees that can be very financially valuable.
It is worth thinking of these things as you read Piketty because doing so reminds you just how limited and approximate are the government statistics that he must rely upon. This is not, I hasten to add, a critique of Piketty, who has performed a remarkable feat in gathering all these data sources. It's just a reminder that our ideas about "wealth" and "income" are socially constructed, and they are only partial approximations of the "power," "prosperity" and "happiness" that we would like to equalize.
Compare two people making $120,000 a year -- one of them in the accounting department of a Connecticut firm you've never heard of, the other a moderately senior reporter at a big news organization. Give them both the same tax rate and asset accumulation. Do they actually enjoy the same standard of living?
Not even close. First, we must note that the accounting manager's job is not very enjoyable. She is somewhat senior, but her department is a cost center, not a revenue center, and a lot of her job consists of hassling everyone else about their paperwork and hassling her subordinates about their attention to detail. She gets to go out on the company dime a couple of times a year, not including the Christmas party and company picnic. There is very little travel, and most of it is apt to be to manufacturing plants in no place you'd ever want to go or company retreats where she spends three days trying not to drink too much in front of the senior executives.
The reporter has an expense account, which he probably complains is not large enough. He is frequently dined at receptions by nonprofits -- think tanks and foundations -- that wish to solicit his opinion on issues or get him to listen to theirs. Sure, it's banquet food, but the accounting manager would be very happy to have someone else buying her filet mignon and tiramisu even if they weren't cooked to perfection. The journalist's job often involves travel for work to actually interesting places, sometimes very expensive trips abroad paid for by foundations or other nonprofits. When he tells people where he works, he gets to see their eyes light up and his impressiveness immediately rise four notches -- six, if he reports on something really cool. His work is apt to bring him into contact with people who know how to help him with little problems such as getting his kid into a better school. He spends most of his day reading, writing or asking people questions, and while it gets tedious, as all jobs do, it doesn't get nearly as tedious as figuring out what the new assistant did to the purchase order system.
These two people are taxed the same; as far as the government is concerned, they have the same standard of living. The reporter has the better deal, but much of this higher compensation comes in the form of things such as prestige and enjoyable work, which are nearly impossible to tax; other forms of compensation come in the form of things we have decided not to tax, such as foundation dinners and work travel. I'm not saying that we should tax those things, mind you -- there are pretty good reasons that we don't. I'm just pointing out that journalists at prestige outlets get a lot of stuff for free that accounting managers have to pay for. Yet, ironically, the journalist is probably more apt to feel hard-used by capitalism, because he doesn't compare himself with accounting managers at firms he's never heard of; he compares himself with the rich people who donate to the foundations that buy him dinner.
The eye of the state is not very sharp; it can make only crude distinctions between fuzzy categories. And so the data we get from its tax collections are also extremely fuzzy. Yet once we have the numbers, we tend to treat them in public conversation as if they are hard and fast.
I reiterate that this is not a critique of Piketty, who discusses some of these problems in his book. It's just something worth keeping in mind whenever you hear someone talking about inequality -- especially if you hear that person talking about inequality as a single thing that could be, and has been, measured.
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