Good Policy can be Painful.. GOP Proposes Scrapping Interest Expense Deduction Option

Listen to This Article Instead..

As you read this, the House is mulling over a proposal that would scrap the interest expense deduction option from federal tax filings. This would have a significant effect on a $1.3 trillion industry, and would smack small business owners, farmers, as well as large corporations, with a higher tax bill.

To put it in layman’s terms; when you borrow money from a bank or whoever, you can tell the government how much you are paying in interest on that loan, and they will adjust for that amount on how much you owe in taxes.

In 2015, Americans paid $1.3 trillion in interest, according to data from the Commerce Department. That $1.3 trillion is money the IRS had to adjust for when calculating tax bills, resulting in less tax revenue. So you can see why congress would want to change this portion of the tax code.

Maybe this is how House Republicans plan to pay for the costs that are covered by the individual mandate they’re cutting out of Obamacare, which could soon be Trumpcare.

My Take.. No Pain No Gain

Nobody has ever said that good policy makes life easier, especially in the short run. Being responsible with your personal finances means fewer beers after work, cooking chicken and broccoli instead of getting Mickey D’s, and cutting out that Hulu subscription (you don’t need it anyways, Netflix is better). It’s painful and annoying, but worth it in the long run.

The same goes for the federal tax code. This change to the tax code may increase taxes for some, but it’s smarter for the economy and could lead to softer recessions.

When it comes to the morality of it, this isn’t so black and white.

Yes, I hate when the government takes more of what belongs to me, and I’m not one to justify higher taxes, even if it they are a result of better policy, but a system that artificially incentivizes debt as opposed to equity (stock) or savings financing is also nefarious. The Feds should just leave it all alone.

As it stands, American Businesses and Farmers are too comfortable with borrowing money to cover expenses. This is how many farmers make it from season to season.

The Answer..

It’s not like borrowers are somehow making money off of debt, that is not why they are borrowing. They are borrowing because the Feds have removed the risk inherent to debt, so they have no reason not to borrow. This is a Keynesian policy, and absolutely should be thrown out, but also followed up on. Like I said, I am not one to justify higher taxes. Accompanying the change to the interest deduction option should be other free market style changes to the tax code.

The government has no legal claim to your income and the GOP, being the “conservative” party, should adhere to principle and implement a flat tax, or some other libertarian leaning tax code.

Voice Your Opinion in the Comments Below..