WSJ: (Tax-Free) Home Barbering Grows with Recession

August 31, 2009

The Wall Street Journal had an interesting article today about the growing trend of home barbering. Due to tighter family budgets, many are deciding to cut their own hair.

I think can of two public policy perspectives on this. First, there would be less at-home hair cutting if barbers were not required to get licenses, which drives up the market price. While I can see some cases where licenses may improve social well-being, I think this is one of those areas where licenses make society worse off (as a whole).

On the tax side, this domestic production of hair cuts is taking place free of income taxation. (The value of this domestic production is also not counted in GDP.) And given that most of this production, as well as most other domestic production, is likely taking place disproportionately among low-income Americans, allowing this “income” to be earned tax-free actually makes the income tax even more progressive than IRS statistics show, all else equal.

In other words, a low-income American is more likely to cut his own grass and do other tax-free domestic production himself than a rich American, who is more likely going to use that time to earn more income in the private sector where the income is taxed and pay someone else to cut his grass. But we never count the imputed income that is earned by the low-income American, thereby overstating that American’s average effective tax rate (tax paid divided by income).

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