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Comment by wtvanhest | Hacker News Reader

Slightly off topic, but does anyone know how/have experience getting a california bill put on the ballot?

One area that I believe is highly inequitable is that home owners can write off all of their interest on their home loan, but there are income caps for student loans that restrict who and how much interest can be written off.

I'd like to draft a measure to make student loan interest 100% tax deductable at the state level. The hope is that passing it in CA would create a conversation around federal income tax policy and student loan interest.

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Then, as someone who is a renter and does not have student loans, I would miss out on two tax breaks. I think a more elegant solution is to get rid of interest deductions for home owners. When you take out a loan, I think you should pay the real price for that loan.

Just out of curiosity, did you attend school? If so, how exactly did you pay for it?

I got BS from a public school. I paid for school via a mix of working ~10 hours a week throughout the school year, applying for local scholarships, doing a paid internship every summer, living in a cheap apartment, and then getting some loans. Since my tuition was only ~$10,000 a year and I graduated in 4 years, the overall amount of loans needed were not huge and could be paid off relatively quickly.

I did a similar thing for undergrad and graduated with no debt. After working a few years went back for a grad degree which is how I accumulated some grad debt. Luckily I am doing fine and will have it paid off relatively quickly. My issue is more with the structural disadvantages we are creating for others and I think creating a system that is fair for both types of borrowers, home loan borrowers and student loan borrowers makes sense.

I would even consider allowing the write-off of discretionary interest like car loan interest. It should likely be capped at some value that allows people to buy a new, but not ridiculous car. (I don't own a car so this is especially not something I care about).

Point is, if home buyers are writing off their interest, people who are investing in themselves definitely should. I also agree with your elegant solution, and would support no write-offs, but I believe it is harder to take away write-offs than to add them.

The student loan deduction phases out somewhere ~70k a year in income. A lot of first year engineering grads will never get to deduct a cent of student loan interest.

Also, getting rid of the mortgage deduction would be a major hardship on the middle class.

Wouldn't making the interest tax deductible increase the price? I've read that economists argue that housing prices would be lower if we removed the interest deduction.

Basically, markets adapt to the cheaper money.

The student loan market isn't really a market. The biggest lender by far is the federal government and the interest rates and lending amount caps are set by Congress.

The point was that the effectively cheaper loans with make the product more expensive. House or university. It has nothing to do with selling the loans.

I think the claim was that the education market is (sort of) a market, at least in the sense that demand is driven to some degree by price. The claim is that if the loan cost drops (and thus the effective price of attending drops), demand will rise and school can raise prices until the perceived cost of attending (and corresponding demand) are back where they were earlier.

The cheaper loans are a _cause_ in the market mechanism being described, not an effect, so for this assertion it doesn't matter how market-oriented they are.

> I think the claim was that the education market is (sort of) a market, at least in the sense that demand is driven to some degree by price.

In a market, price is driven by demand (and supply). If price is externally controlled (which isn't, then, a free market), then the quantity traded will be driven by price (it will be the minimum of quantity demanded and quantity supplied at the price.)

But, that's all irrelevant; the relevant relationship is that an external subsidy to buyers outside of the price exchanged between buyer and seller (which is not a price cut) increases demand and, thereby, both market clearing quantity and market clearing price (assuming the supply curve slopes in the usual direction.) The latter effect (increase in market clearing quantity) is usually the intended effect of a subsidy, the price effect comes along for the ride.

OTOH, there is plenty of evidence that loan repayment costs (and this has been generally been shown to be the case with deferred costs) are excessively discounted in decision-making, which increases the degree to which loans act like subsidies (in both quantity traded and price effects), but also decreases the degree to which subsidizing loan repayment acts like a subsidy (because it reduces a costs that is discounted in decision-making, reducing the effect of both the base cost and the reduction of that cost.)

I don't think the mechanism you describe is particularly strong if the amount that can be borrowed is capped -- at least not beyond the price point of the cap.

Why do you say it isn't a market? You have buyers (people who borrow) and lenders (people who lend). Just because the gov't is the biggest lender doesn't mean supply and demand aren't important.

If you make it easier to borrow money for education, then there is less pressure to keep education costs down.

So you would lower tax intake by millions of dollars. Where do you propose to cut to pay for it?

You wouldn't necessarily need to. It would lower one kind of tax stream, but giving people more money to spend would increase others by a similar amount. If I had another $500 of free money, I would most likely spend that on something that is taxed. Possibly something that's taxed at a higher rate, or something that contributes to the GDP.

We give tax breaks to companies all the time with the explicit understanding that they will cover that loss just by the mere fact that they exist and are spending money.

Didn't we try that in the 80s, nation-wide, to ill effect? (Until Bush realized it was unsustainable in his second year and raised taxes again?)

My history is a bit fuzzy having just woke up.

Well, not all groups do the same thing with their newly reclaimed income. If memory serves, lower income folks will tend to spend all of it because, well, it's expensive to be poor and they're trying to catch up to some basic level standard of living. Middle class – it's a mix, but much of it gets saved or invested. The rich – they don't spend the extra money – they invest it (often avoiding taxation or comparable taxation).

So, IF that's true, it might make this more viable because the rich and upper middle class are less likely to be holding student loans, and thus, this money is more likely to be spent.

What doesn't work is giving tax breaks to companies in the hope that they'll hire more people. That's called trickle-down economics, and you're right. We tried it, and it didn't work. Companies and rich people tend to just save the money instead of spending it. What does work is giving tax breaks to normal people, who will then spend that money on something that benefits the economy. It's the trickle-up effect.

If you gave me $500, I'd buy a new dishwasher. But a rich person doesn't have to save money to buy a new dishwasher. Giving them more money isn't going to change their life in any appreciable way. Everything they want, they already have. But poor people want/need a lot of things they can't afford. Giving them a tax break means they can now afford to buy things they previously couldn't, which means Whirlpool sells more American-made dishwashers, hires more American employees, and pays more American taxes.

Oh and the reason Bush raised taxes in the 80s is to pay for a war. You can't fix the deficit, cut taxes, and go to war. War is expensive.

I think a more likely scenario is people take the $500 and use most of it to pay bills or pay off credit card debt. They then take whatever money is remaining and go out to dinner, buy toys for their kids, etc. The real effect of the tax break on growing the economy is muted quite a bit in this scenario.

How does paying bills and credit card debt mute the effect of the tax break?

Bills need to get paid. If I'm paying my bills with "free" money, that means I have other money to spend on other things. If I'm paying off credit card debt, it means I have those interest payments available to spend now.

The only way to waste money from the economy's standpoint is to save it. As long as it's being spent, it's being spent well. And as long as it's being spent on something that you pay taxes on, the government wins too.

I am just trying to say that if someone uses the tax break to pay off a portion of debt or to pay for bills and not have to get a payday loan, it doesn't have the same immediate effect as if they go and buy a dishwasher. Yes, they end up paying less interest on their debt over long run, which gives them more money to spend (or save). But these gains are realized in there being less interest in the monthly debt payments, and I think in this case the gains are more likely to be saved rather than pooled to make a large purchase.

On a more fundamental level tax breaks to increase tax revenue is largely doomed to fail just because each dollar you cut has to be replaced by multiple times that amount spent in other tax streams to make up for it.

The US economy did far better in the 1980's than it has in the last 10 years (average of ~3% per year). Employment was 5.3% in 1988.

US GDP growth from 1980 to 1988[1]:

1980: 9.62%

1981: 9.69%

1982: 3.79%

1983: 11.4%

1984: 9.62%

1985: 7.37%

1986: 4.86%

1987: 7.57%

1988: 7.76%

[1] http://www.multpl.com/us-gdp-growth-rate/table/by-year

> Didn't we try that in the 80s, nation-wide, to ill effect?

Not exactly; Reagan's "biggest tax cut in history" on income taxes was followed very quickly by his less-frequently-remembered biggest tax increase in history (on payroll taxes), and so was really just part of the biggest tax burden shift in history from higher income to lower-income earners.

In the short-term, this didn't have bad top-line aggregate effects on the economy, but it was a key factor in the bad distributional results since that time.

George H. W. Bush only served a single term.

Some of the tax money would be recovered via higher spending or potentially even an increase in real estate values and real estate taxes.

The rest may require either cuts in other programs or increases in income tax rates for everyone. Either event would create a more fair tax structure which is why it should be proposed.

We have a major student debt crisis and we should be attacking it from multiple angles.

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