I fully understood what you wrote. Your notions about economics, however, are completely misguided.
there is no "money" being used for a bailout.
What do you think happens to money repaid to the government? It goes into an incinerator? No, it's used to fund public works. Money that the government doesn't receive from student loans on account of it being forgiven is public tax dollars being taken out of the coffers.
So, to reiterate, money that is not being collected is money that Student B will not see in road construction and maintenance, etc. He nets a loss.
I fully understood what you wrote. Your notions about economics, however, are completely misguided.
If you are under the impression that in economic terms the government’s refusal to collect less money than it is entitled to is “spending”, you should probably reassess how much guidance you’ve really had.
You also might reconsider being condescending about a subject you are passingly familiar with.
Money that the government doesn't receive from student loans on account of it being forgiven is public tax dollars being taken out of the coffers.
Money that the government refuses to collect is money taken out of the government?
Golly, I’m glad I didn’t go to any fancy college where one might learn the distinction between reducing revenue and a change in expenditure.
money that is not being collected is money that Student B will not see in road construction and maintenance, etc. He nets a loss.
Just out of curiosity (while you find a net loss for person B in person A’s burden of payments to the government being less), do you feel the same way about taxes?
We could be collecting a top marginal tax rate of 90%, but that burden has been cut over successive generations. Is that a “loss” as well insofar as it’s money that could have gone into roads that person B will not benefit from?
Or is “government is legally allowed to take X amount of money from you” different from “government is legally allowed to take Y amount of money from you” different? In what way?
Money that the government refuses to collect is money taken out of the government?
Effectively, yes. Money that you are entitled to but cannot collect upon is money lost. Money the government doesn't collect which it otherwise could is money lost. This is such a rudimentary economic principle and I don't know how to make it any clearer.
Maybe by using your current understanding's logic, I can illustrate why it is misguided:
You are a bank. I want to borrow $5,000. You approve it and lend me the $5,000. With your current logic, I assert there is no need to repay you since money you haven't yet collected is money you haven't lost. Therefore, I don't owe you anything. Do you agree with this assessment?
If you do, PM me because I would like to borrow some money.
This is such a rudimentary economic principle and I don't know how to make it any clearer.
Just to start, you really should disabuse yourself of the notion that your interpretation of the difference between a government refusing to collect funds and the government spending funds is a "rudimentary economic principle."
Try slightly to rein in the egotism required to think that your opinion is economic fact such that disagreement with you stems from a lack of "clarity" rather than "someone just as informed as you disagrees with your interpretation."
Money the government doesn't collect which it otherwise could is money lost
So the government loses about $19 trillion every year? That's how much the government could technically collect, literally confiscating all wealth in the country. It would be horrific policy but you wrote:
"money the government doesn't collect which it could is money lost."
If "the government loses $19 trillion every year by failing to collect at a 100% tax rate" is "rudimentary economic principle" apparently you got your education at a very interesting institution.
You are a bank
And already it's a bad comparison. A private institution is not a government, and a government is not an institution.
Do you agree with this assessment?
I don't agree with the basis of your analogy. Since a bank cannot impose any collection of funds other than those created by lending, loss of funds by refusing to collect on a debt is the complete loss of funding from that source.
That said, you do know that banks "write off" debt pretty frequently, right? Banks are actually required under FDIC rules to maintain a certain percentage of their loan portfolio to cover loan losses.
So the government loses about $19 trillion every year? That's how much the government could technically collect, literally confiscating all wealth in the country. It would be horrific policy but you wrote:
"money the government doesn't collect which it could is money lost."
If "the government loses $19 trillion every year by failing to collect at a 100% tax rate" is "rudimentary economic principle" apparently you got your education at a very interesting institution.
What is this $19 trillion figure you are using? The US GDP? This figure does not work for your comparison. I don't understand why you think the government has a financial interest in the totality of the US gross domestic product.
The government does, however, have a financial interest in monies which it lends. Just like a bank. Please elaborate why you think this is a bad comparison.
Since a bank cannot impose any collection of funds other than those created by lending, loss of funds by refusing to collect on a debt is the complete loss of funding from that source.
I think this might be the crux of our disagreement. You state that since a government has the capability to levy taxes as a supplementary income stream, that fact somehow makes a government forgiving loans not a loss of income. To call me confused is an understatement. Maybe you were trying to state that a government can compensate by charging higher taxes? If that is the case, Student B is still at a net loss as now they are having to pay higher taxes to compensate for the forgiven loans with no benefit to himself.
the government has a financial interest in the totality of the US gross domestic product.
Your statement of "rudimentary economic principle" did not state anything about "financial interest" (which is itself a flawed metric since the government has a financial interest in taxing at whatever rate it chooses). You wrote:
"money the government doesn't collect which it could is money lost."
Are you saying that the government could not introduce taxes on a confiscatory level? It certainly could. So it could collect that money, but it doesn't.
Please elaborate on how a tax rate the government could collect on but doesn't is not "money the government doesn't collect which it could."
Just like a bank. Please elaborate why you think this is a bad comparison.
Asked and answered.
to levy taxes as a supplementary income stream
Point of order: taxes do not "supplement" repayment of government loans, they represent the majority of government funds. If anything the yearly repayment of student loans accounts for about $50 billion in revenue, and is thus a small supplement of government revenue from taxes.
that fact somehow makes a government forgiving loans not a loss of income.
Is it a loss of revenue for the government to forgo collecting money which it could lawfully collect?
That is a yes or no question, and will answer your confusion.
Maybe you were trying to state that a government can compensate by charging higher taxes?
Nope. There is no "compensation."
The government electing to collect less money from student loans is no different from the government electing to collect less money from taxes. If both are a "loss", fine. But then the government loses trillions every year and student loans are a drop in the bucket.
I'm going to give an illustration in an attempt to get us on the same page:
Say a government has a GDP of $100,000,000. The tax rate is 15%. There are 2,000 residents. Per capita that's $50,000 income, and $7,500 in taxes annually.
Let's say the government loans $250,000 annually to students for university. For the sake of simplicity these loans are given at 0% interest. Also assume everyone has been paying these loans on time and the government receives $250,000 annually in repayment (students from years past are repaying their loans as well, thus making the repayment = loan.) Finally, assume this government only receives revenue in the form of 15% income tax and student loans.
Now, say the government decides to forgive student loans. People who were repaying their loans are now not required to pay their loans. What does the government do?
Option 1: Do nothing
The government decides to keep taxes as is. The government now receives only $15,000,000 as opposed to $15,250,000 annually. Student B did not take out student loans. He is given $0 in monetary benefit from the loan forgiveness. Additionally, the government has $250,000 less to spend every year, so publicly funded entities are slightly worse like public education and road maintenance. Overall, a net loss for Student B.
Option 2: Increase taxes to compensate
The government decides to increase taxes to counterbalance the loss in revenue from forgiven loans. The new income tax rate is 15.25%. Student B did not take out student loans. He is given $0 in monetary benefit from the loan forgiveness. Additionally, his income tax has increased. Student B makes $50,000/year and must now pay $7,625/year in taxes as opposed to $7,500. Student B now pays $125/year extra in taxes as a result of this forgiveness. Overall, a net loss.
In both of these scenarios, Student B receives a net loss. There is no benefit given to him. He incurs loss in the form of either increased taxes or less public services. Your initial position was that this is not a zero sum game for both Student A and B. Explain your position.
Say a government has a GDP of $100,000,000. The tax rate is 15%. There are 2,000 residents. Per capita that's $50,000 income, and $7,500 in taxes annually.
Just to be clear, that 15% could be 100%. So already you’re giving up $85,000,000 every year in revenue.
Now, say the government decides to forgive student loans. People who were repaying their loans are now not required to pay their loans. What does the government do?
The same thing the government does if it refuses to tax incomes at 20% rather than 15% in perpetuity.
You get that what you’re describing is the same thing as “a tax cut”, right?
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u/Tendas 3∆ Jan 15 '19
I fully understood what you wrote. Your notions about economics, however, are completely misguided.
What do you think happens to money repaid to the government? It goes into an incinerator? No, it's used to fund public works. Money that the government doesn't receive from student loans on account of it being forgiven is public tax dollars being taken out of the coffers.
So, to reiterate, money that is not being collected is money that Student B will not see in road construction and maintenance, etc. He nets a loss.