Back in 1986 Ronald Regan signed the Tax Reform act of 1986 which stopped people from being able to deduct interest from their federal taxes for things like credit cards and car loans. Why was that a good idea then, and why would it be a bad idea to let people start to write down some of their debt now? Certainly there’d need to be some sort of ceiling, but with the middle class in America under the crunch right now how would that not be a beneficial thing?
Not for the deficit.
No. It encourages bad habits. We don’t want to give people more reason to go into debt.
But people are already in debt, lots of people pretty badly. Does allowing people to write off some of that cost really encourage them to make worse decisions? What if it was done as a temporary one time measure, announced for one year right before filing?
The Home mortgage interest deduction is already under fire by pretty much all economists, and you want to add a deduction for credit card interest back in? At least the mortgage deduction encourages home ownership (something beneficial to society). What does encouraging credit card debt accomplish?
Yes and yes. Both would encourage reckless borrowing. When you subsidize something, you get more of it. It’s that simple.
So, you are essentially asking why a deduction for personal debt is a bad thing.
But why would it be a good thing? What’s the case you make for why it should be deductible?
I think the argument would be that it would stimulate spending, and provide relief to individuals in financial hardship, possibly thereby stemming foreclosures etc.
However, it strikes me as a very inefficient way of doing this, not least because it is tilted towards higher earning individuals.
It isn’t that it would unfairly benefit high income people, it would unfairly benefit profligate spenders. I find it unthinkable that I would be prudent and scrape by without credit card debt only to have the government ask me to subsidize someone’s $400 handbag. If you need stimulus then I find it hard to imagine a way to do it that would create more hard feelings and more moral hazard.
Well, possibly a $400 tax credit for handbags.
There’s a lot wrong with it, but it would also unfairly benefit high income people - higher tax rates mean you gain more from making something tax deductible.
Exactly. Most people don’t itemize, and if you don’t itemize, you don’t get any tax credits. It was a stupid idea back in the day, and it would stupid to bring it back.
Of course I wrote the OP not knowing why it wasn’t a good idea, it was just born out of it being tax time and me wishing I had more things to write off. It’s entirely selfish, I bought a new car and I want to be rewarded for doing so. I spent well at Christmas and I want to be rewarded for doing so. I know it’s a silly idea, and one that doesn’t even follow my own personal politics really. I just want a break for being a statistical outlier during the Great Depression part 2 who pays his bills and continutes spending on new items.
Having a new car and whatever happiness giving at christmas brings aren’t rewards?
We need more tax revenue not less. Its getting pretty fucking sad listening to all sides screaming about debt but pretty much no one is willing to take any personal responsibility and pay a little more to lower it.
You’ve been rewarded with a new car and lots of presents. Also, federal taxes for your income bracket (whatever it is) is almost certainly lower than at any time in the last 60 plus years.
I’m not saying you’re a bad guy or anything, but what you are suggesting is kind of like a kid wanting a cookie from his parents because he finished his whole banana split sundae.
If you pay your bills, you’re not paying interest, right?
In addition to all the other reasons why this is a terrible idea, it would probably result in the banks raising interest rates because the interest is more affordable, and making them more money. The low income people who need the help the most wouldn’t get anything, and might even get hurt.
As for me, paying my bills and seeing interest charges of zero for the entire year (and cashback) is reward enough.
Yeah, this country needs more special bonuses for morons!
If you’re going to give away tax dollars, give them to Planned Parenthood, or the Atheist Alliance, not Joe blow who can’t keep his debts under control.
That way the money will at least be well spent.
Oh yeah, I know. Like I said, it’s totally selfish *and *against my own beliefs. Illinois just raised our income taxes and except for the fact that they’ll just spend it all on the governmental equivalent of whiskey and fireworks I actually think it’s a good thing and I’m more than willing to shoulder my share of the tax burden. I’m like Bill Gates if Bill Gates had $236 in his checking account. 
Well I do carry a balance on my credit cards, but I try not to carry much. I do think that I should be able to write off my car loan interest since I can’t see why in 2011 it’s better to buy a ticking time bomb of a home than a car.