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)

The Remote Warehouse Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.


Elsewhere on the web

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

Where the Wild Things Go

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Adults Need Playtime Too

When was the last time you played your favorite childhood game?

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In