Saturday, September 24, 2011

Yup, a Pacer.

The first thing I ever put on a credit card was back in the 1970s, I got new tires at Sears for our AMC Pacer.

Yup, a Pacer. I liked the thing.

Anyway, we can assume I've always had a credit-card balance since that day. So if we look at it LIFO -- Last In, First Out -- then I guess I'm still paying for those tires. 18% annual interest... 33 years... $1188 just in interest for tires for that car long gone.

This is what happens when there are no tax incentives to accelerate the repayment of debt. If I was the only one, I'd say forget it. But it's not just me.


Jazzbumpa said...

You've fallen into the trap that conservatives have set for you of believing that individual behavior is strongly influenced by tax incentives.

This is nonsense.

First off, do you really believe that someone who needs new tires is going to weigh the expense of charging them against a tax liability he won't give the slightest thought to any time before the following April? And then, when he weighs the possibility of paying off his credit card debt vs acquiring that big screen TV for the SuperBowl broadcast, he again ponders the tax ramifications?

People live in a world of monthly payments. If they even consider the cash flow aspect, it goes about as deep as, "Can I pay for this and still afford to feed my cat?"

Second, 40 to 50% of the population pay no income tax. Zero. Bubkus.

What kind of incentive will you give them?

The middle class is living beyond its means. Someone with %20,000 credit card debt is accruing perhaps $4,000 per year in interest liability.

But that person is more likely to acquire new debt then pay down the old, because he doesn't make enough money to cover the life style he expects. How can he pay down debt with insufficient cash flow? But adding to debt is pretty easy.

Tax incentives are never the answer. If a tax incentive is driving your decision, you are almost certainly making a poor decision.


The Arthurian said...

the mortgage-interest deduction?

Anonymous said...

I worked for American Motors when the Pacer was introduced. For a second rate doomed auto company they had some innovative ideas.

The Pacer was a small car that was intended to feel like a large car so, they made it a wide car, hence the kind of turtle look to it.

Jazzbumpa said...

The lower 40% don't own a lot of homes. The mortgage interest rate deduction exists to give a write-off to millionaires. Those of us in between get a little break from it as well. That, I guess, is collateral benefit.

Canada has no mortgage interest deduction and their home ownership rate (67%) is very close to ours (68.9%).


Jerry said...

I think that the people who own/earn so little that they don't pay any federal income tax are essentially irrelevant to this sort of discussion because they make up such a small fraction of the economy.

It's also worth saying that these people often wind up paying a larger fraction of their income (and certainly a larger fraction of their wealth, which i think is the appropriate thing to normalize by (i.e. not income)) in TOTAL taxes than wealthier people, even though they pay no federal income tax. They still pay sales tax, excise tax, payroll tax, state tax, etc.

So, it may be the case that Art's talking about a federal income tax incentive and not an incentive in any other kind of tax and my statement is irrelevant - but in any case I think it is deceptive to speak as if these people pay no tax. Proportionately, they usually wind up paying more in total taxes than people in the "top 10%".

Jazzbumpa said...

Jerry -

No argument here. I can't speak for Art, but I was referring specifically to federal income tax. When one considers tax incentives/disincentives that is the usual context, I believe.

Low earners might make up a small part of the economy, but I wonder how much of the debt they owe?