May 21, 2014

MEGAN MCARDLE: 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.. . .

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.

Indeed.