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Remote Jobs Are Good for Workers, but Not for City Budgets

Companies and job seekers have expanded options if workers don’t have to live where they work. But for city governments, this can mean lost tax revenue.

Philadelphia Mayor Jim Kenney. A rise in telecommuting has had a significant impact on the city's wage taxes.
In the 1970s, in the face of both an oil embargo and a newly passed Clean Air Act, a NASA engineer proposed telecommuting as “an alternative to transportation.” He was certain that technology would make this possible, even though the personal computer and the Internet hadn’t yet entered the workplace.

During the pandemic, remote work has helped employers and workers in some fields balance public health imperatives and productivity demands. It’s become clear that many jobs can be done just as well, if not better, out of the office.

Even when case surges are a thing of the past, telecommuting will be increasingly important to the future of work. A new analysis from the Pew Charitable Trusts reveals that this can lead to problems for local government.

“Fewer commuters — or workers who commute less often — could translate into a shrinking local revenue base and contribute to long-term fiscal challenges for local governments,” it concludes. Exactly how this might happen varies from city to city.
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Dimensions of Risk

The Pew analysis involved data from 10 geographically diverse cities. It looked at the interplay between the share of jobs held by workers living outside each city and the share of all jobs in professions such as finance, management or other professional sectors most likely to be suitable for telecommuting.

Three tax sources can be affected if workers don’t live where they work and can do their jobs from home: property tax, sales tax and income tax. The impact on these revenue streams in a particular city has little to do with where it is in the country. “It’s more the city’s unique characteristics, the type of jobs they have and the way their tax code is organized,” says Adam Levin, an officer with the state fiscal health project at Pew.

The more heavily a locality depends on property taxes, the less the impact of fewer commuters might be, assuming there’s no exodus of residents who choose to relocate and work remotely. A rise in telecommuting would have a different meaning for a jurisdiction with a high percentage of commuters that relied heavily on sales taxes for its budget. A city with a high share of commuters and workers with jobs that don’t really require them to come to an office building could lose workers who pay more wage taxes and spend more when they are in town.

For example, wage taxes have accounted for almost half of Philadelphia’s tax revenue, according to an earlier Pew report. It cites an estimate that between 14 and 27 percent of workers with jobs in the city who were not working remotely before the pandemic will do so moving forward.

The city recently updated its budget projections for FY22 based on commuters not coming into the city as often, says Levin, with “optimistic” and “pessimistic” scenarios. “For the optimistic scenario, the wage tax was $51 million less than they had initially forecasted; for the pessimistic scenario it was $128 million less.”

To proof themselves against such losses, he says, cities could consider modernizing their tax base by taxing online goods and services more or possibly sharing services with other local governments to reduce costs. Planning for investments in transportation infrastructure, now buoyed by an influx of federal funds, could take any projected long-term impacts of remote work into account, in consideration of the fact that long-term maintenance of systems will rely on fares.
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The relationship between the share of jobs held by commuters and the share of jobs in industries most suitable for remote work is one clue to the potential for lost tax revenue. San Francisco, for example, has a large share of commuters and a large share of well-paid jobs that could be done remotely.

No Going Back

Before the pandemic, about six percent of Americans worked remotely all the time. In October, 25 percent of full-time workers in the U.S., including 40 percent of all white-collar workers, were working exclusively from home. According to a Gallup poll, about half of workers now working remotely at least some of the time would prefer a hybrid work schedule and about 40 percent want to work only from home.

As frontline workers in both public and private sectors know well, some jobs have to be done in person. The McKinsey Global Institute estimated how much of the work in various sectors could be done remotely, with no loss of productivity. The figures vary greatly, from just eight percent for accommodation and food services to 76 percent in finance and insurance and 68 percent in management.

Nine out of 10 full-time workers want to work from home at least some of the time. Those who are seeking jobs are shifting toward positions that offer the possibility of remote work, says AnnElizabeth Konkel, an economist at the Indeed Hiring Lab.

A Microsoft study that encompassed more than 30,000 workers in 31 countries and analyzed “trillions of productivity and work signals” from its software and LinkedIn found that 70 percent want flexible work options to continue. Two-thirds of employers are thinking about redesigning their facilities to accommodate hybrid work.

The Bureau of Labor Statistics has been following a nationally representative sample of men and women born between 1980 and 1984 since 1997, tracking the impact of their education and other factors on their experiences in the labor market. Between February and May of 2021, about 4 in 10 of all men and women in this cohort who had a bachelor’s degree or higher worked only from home.

Telecommuting will be a post-pandemic norm for many workers, but a “norm” has not yet emerged regarding how states will view the tax obligations of employers with remote workers. Some issued guidance during the public emergency that may not reflect future policy. How might policies be different for full-time remote workers and those who do some of their work from home and some at an office located in another jurisdiction?

CPA Journal recently assessed the tax implications of remote work for employers, concluding that, “The shift to remote work should give employers plenty to think about in terms of their state income tax, sales tax compliance, and withholding and other business tax policies and procedures, given the varied — and often conflicting — approaches taken by the states.”
Carl Smith is a senior staff writer for Governing and covers a broad range of issues affecting states and localities. He can be reached at or on Twitter at @governingwriter.
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