Imputed Income

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Imputed income is the non-cash consumption benefit acquired either from owning durable property or from performing personal services. It consists in "rents and wages" that one implicitly "pays" oneself for use of one's own property and services, and is thus hard to capture in an income tax. As a result, an income tax will tend to favor these activities over certain transactions associated with the division of labor.

Durable Property: Home ownership is an example of imputed income from durable property. If a "landlord" lives in the property he owns, he does not simply forgo rental income on his property in exchange for not owing an equivalent amount of rent to someone else. He also avoids paying income taxes on that rental income. (In the specific example of home ownership, this distortion is further exaggerated in the United States, which deducts interest on home mortgages.)

Personal Services: Here, the traditional example is a non-working housewife who isn't taxed on wages that the family implicitly "pays" her for her services; if she were working, the wages she might pay a hired employee would be taxed. This is a systemic unneutrality that is inevitable in any income tax, which also favors "leisure" (including self-rendered benefits such as shaving and mowing your lawn) over "work" (services sold on the market for cash).^[1]

[edit] See also

• Implied level of government service
• Rational economic exchange
• Real property use tax
• Taxation in the United States

[edit] References

1. ^ Chirelstein, Marvin (2005). Federal Income Taxation: A Law Student's Guide to the Leading Cases and Concepts (Tenth Edition ed.). New York, NY: Foundation Press. p. 26-28. ISBN 1587788942.