Income Tax & Urbanism

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Eddy Elfenbein, a U.S. investor and portfolio manager, recently posted on Twitter (on November 7th, 2019) the following tax plan:

“My tax plan is simple. You choose your own marginal rate. The catch? That’s also your personal speed limit.”

He almost certainly was joking, but it’s an interesting idea and if by some chance it was adopted it would have huge implications for urbanism and housing. Let me explain.

If you think about it, everyone, if given the opportunity to choose their own income tax rate, would choose the lowest possible, which is zero. But that would mean they couldn’t travel any faster than zero, which means they couldn’t leave their homes. Since that’s not realistic or practical, they’d have to choose a rate higher than zero. For most people the lowest tax rate they could choose while still being able to move around would be 3% or 4%, which would allow them to walk (which for most people is around 3 to 4 mph, normal walking pace in other words). That’s a low enough income tax rate to rule out travel by vehicle—airplane, car, bus, train, or even bicycle—and would require living in a geographically-compact urban area. By contrast, those who would want to live in the suburbs would have to pay a much higher tax rate to allow for a vehicle to get around, say 50% to allow for driving at 50 mph. Basically, this plan has a built-in incentive for large amounts of people to live in dense urban areas which they can get around by walking.

I’m sure Elfenbein doesn’t think of himself as an urbanist, but urbanists might like his tax plan!