Wednesday, May 5, 2010

UK Economist Wants to Tax Household Debt

Oh no, don't give any more funny idea to the US prez ...

If you think this professor's talk of "negative interest" is nuts, wait till you read this article. One of the leading British economists is proposing a tax on household debt.

Radical tax on debt put to parties (Edmund Conway, 5/1/2010 Telegraph UK)

"Households should pay a new tax on every pound of debt they owe, according to one of Britain's leading economists.

"Martin Weale, director of the National Institute for Economic and Social Research, said the winner of the election should consider the plan in an effort to wean Britain off its reliance on debt. He said that a small annual levy of 1pc on all household debt, including mortgages and credit cards, could help raise £15bn a year – more than would be raised from a 3p increase in the basic rate of income tax.

"Although the suggestion will raise eyebrows, Mr Weale runs one of the country's most respected independent institutions, so may spark speculation that it could be examined by the next government. The Conservatives and Liberal Democrats have both pledged to overhaul the tax system to remove the favourable treatment of debt, although neither has suggested a direct levy on household borrowing.

"However, Mr Weale said that this would not only raise extra cash and discourage families from borrowing too much, but would also provide policymakers with a new lever to control the credit market.

""You would charge households 1pc on the outstanding debt," he said, "perhaps just imposing it on unsecured debt [such as credit cards and overdrafts] at first.

""One of the beauties of the idea is that you could vary the rate depending on the state of the economy."

"Britons currently owe just under £1,500bn to banks and other lenders, with £225bn of this outstanding on credit cards, overdrafts and unsecured loans, and the rest on mortgages." [Emphasis is mine. The article continues.]

So this economist wants to levy 1% tax on all debt so that the households are discouraged from borrowing, and at the same time the government has a new, significant source of income.

It is a cynical scheme. UK's economy is not exactly booming; it's more likely that people will continue to incur new debt or will be just making enough to service the existing debt. Steady stream of income is guaranteed for the government.


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