What if We Taxed Debt?

More

The United States encourages families and companies to take on debt. Want a really big house, Mr. Family Man? You get a tax benefit from that humongous mortgage. Want to finance a new expansion by borrowing, Mr. CEO? The interest you pay is tax-free.

But what if we did the opposite. What if we taxed debt? Interesting thought, via WSJ:

In a new paper, Olivier Jeanne of Johns Hopkins University and Anton Korinek of the University of Maryland build a model designed to determine what kind of tax would best smooth out the credit booms and busts that can cause so much economic damage.

The result: We could all be better off if, during booms, the government placed a tax of 0.56% on the borrowings of small and medium-sized businesses, and 0.48% on the borrowings of U.S. households. The tax would fall to zero in busts.

The typical American entered the recession with debt worth 122 percent of his yearly income. We'd like to see that number come down in the future. How do we do it? One way is to discourage families from taking on too much debt by taxing their debt. Another way that wouldn't discourage investment is to simply tax what they spend with a national consumption tax that crept up during booms and fell, to encourage buyers, when the economy slowed down.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

Is Technology Making Us Better Storytellers?

The minds behind House of Cards and The Moth weigh in.

Video

A Short Film That Skewers Hollywood

A studio executive concocts an animated blockbuster. Who cares about the story?

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Video

What Is a Sandwich?

We're overthinking sandwiches, so you don't have to.

Video

Let's Talk About Not Smoking

Why does smoking maintain its allure? James Hamblin seeks the wisdom of a cool person.

Writers

Up
Down

More in Business

Just In