September 13, 2007

Time Equals (Glorious, Tax-Free) Money

THE BOSTON GLOBE has published (reg. required) a neat little article on the concept of "time banks," which essentially act as a favor-bank for people within a community. For instance, if Mr Smith spends an hour shuttling Mr Jones to the grocery, he receives credit for one hour's worth of services he can "cash" from Mr Thompson for another service, such as fixing his broken freezer.

This is a particularly clever idea and I'm pleased to see it has taken hold throughout much of the United States. It reminds me of an old Eric Frank Russell story -- written in 1951 -- in which an entire society bases its economy around such a system. The society in question necessarily had very strong community ties because everyone depended on everyone else for assistance. And I do hope the idea spreads: in an age when commercial ties have largely supplanted age-old networks of family and community, these time banks could prove valuable for citizens.

After all, let's say Mr Smith spends three hours per week performing time-bank services. After a month, he could earn enough time for three evenings of free babysitting -- which could save him perhaps $100 or so. Or, he could engage someone to rake his yard, perhaps saving $100 or $200 that he would have spent on a landscaping service. True, one could certainly argue that had he been employed in steady work for those twelve hours, he could earn more than he would save, thus making the transaction uneconomical. But the intangible value -- the goodwill, one might say -- of the work would have its benefits. After all, if you need a ride to the airport, the convenience factor alone of getting a free ride might outweigh the cost and intangible hassles of having to otherwise arrange for transport, thus making the transaction economical. Plus, since the transactions are necessarily tax-free, Mr Smith's return is actually greater than one might otherwise expect.

Of course, one does wonder about taxes in this situation, but I do think the time banks are on solid ground.

According to the IRS's Tax Topic 420 (Bartering Income), services arranged through bartering are taxable. Thus, if I as a writer agreed to look over my plumber's manuscript in return for the plumber fixing my broken toilet, both of us would have to declare the market value of those services as income. This is because the Government is clever and does not want people to use bartering as a means to sneakily reduce their taxable income.

But under the Government's definition of barter income, "the term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis." That would appear to be the case here. After all, if an attorney agrees to ferry an elderly resident to the grocery, and in return receives a ride to the airport later from a handyman, one can't really say there was a commercial point to the transaction, as neither the lawyer or handyman are regularly engaged in offering rides.

Obviously, the concept of a "time bank" is far more amenable to people who are not highly compensated, as their labors are not as monetarily valuable and as such they have the most to gain (or least to lose) from such a system. An accountant who charges $250 per hour for his services would undoubtedly be better off just working more and buying the services he needs. But for a waitress making $10 an hour, it could have real benefits, particularly if the outlay she would normally expend on services offered through a "time bank" exceeds any wages she could make through traditional work.

(via Boston Gal's Open Wallet)

Posted by Benjamin Kepple at September 13, 2007 12:01 AM | TrackBack
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