Household taxation

The question of how much is enough has been a recurring thing recently in the Finnish press with different parts of society chipping in their two cents worth via comment sections in prominent local papers. On one hand better off individuals have shown up with statements that over 100k per year is enough for anyone while members of six person households have voiced their concerns that aggregate post-tax disposable household income of 9-10k per month is barely something that they can live on. Of course one of the key parameters here is the overall cost structure of your life, which I did not really care to get into here. However, one thing that does merit some comments is how to carry out the taxation.

Both in the aforementioned comment sections as well as in the sphere of people I know, there has been a somewhat interesting trend in people wishing to change from taxing individuals to taxing households. Supposedly this would be farer as it is not entirely uncommon in some families for one partner to earn very well with the other carrying a less well compensated occupation, which would result in the overall tax load of the family unit to be lower. The argument is precisely that: the family functions as a unit, so why not tax it as one.

The obvious reason why not to tax the family as a single unit is obviously precisely that: very many of the good and functioning parts of the Nordic systems have spawned from accepting individuals as the primary component in the equation. Think of it this way: taxing the family as a single unit will drop the tax for the high earner, but will on an individual level increase the barrier to do more work for the low earner as they would be subject to the same higher tax rate. Would this matter? If we accept the assumption of using the family as the unit of analysis, perhaps not, but families do tend to break apart and actively designing a system which demotivates one person from working will be problematic if the family breaks apart.

Moving away from the individual level, household taxation would also introduce problematic things in the context of income equality. I am personally not entirely convinced that income equality in itself is a very crucial or key component in assessing the health of society, but many people do. If we hold income equality important, we also do not want to introduce mechanisms to grow inequality, which would undoubtedly happen if the above is assumed to hold true.

On a slightly unrelated thought, I was recently talking with a friend of mine, and he was saying that one reason given for the relatively well functioning Nordic system is related to the family unit being relatively small. Without the need of maintaining a large direct and indirect family system to ensure survival, the flexibility afforded by a small core family will bring benefits on the level of the entire economy where people are able to move more freely without having to consider safety nets and similar. Of course all of this is afforded by the ability of the state to provide the safety net in an economically efficient way. It is yet to see how economically efficient we will be in the long run, but this idea certainly sounds quite interesting.