Comment by matthewdgreen
2 years ago
The only thing I would add to your comment is that merchants aren’t the ones being forced to pay these stupid fees, it’s their customers (and primarily their poorer and often non-card using ones) who are being quite heavily taxed to fund a marketing scheme for rich customers. Most competitive businesses can’t afford to fund such an elaborate targeted marketing campaign directly out of their fees without some competitive pushback: hence the actual question you should ask is why the entire system exists, and the answer has to do with a pile of inefficiency and rent collection based on regulatory capture.
> The only thing I would add to your comment is that merchants aren’t the ones being forced to pay these stupid fees, it’s their customers (and primarily their poorer and often non-card using ones) who are being quite heavily taxed to fund a marketing scheme for rich customers.
Counterpoint: i will pay you $500 if any of the big retailers (>2k stores) lowers prices now and cites "lower credit card fees means we can charge less".
Because of the stickiness of prices, passing through of cost savings usually manifest as slower inflation. Costco is rumored to have negotiated 0.3% from Visa in exchange for exclusivity. This is part of how they are able to sell goods at thin markups. Aldi USA used to only take debit cards. They caved and now take credit cards. Travelers Insurance offers two prices on every quote: by bank account or a higher one by credit card.
http://www.bloomberg.com/features/2015-how-amex-lost-costco/
Most insurances do charge lower fees for direct deposit - Allstate does it at well.
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Do you think prices would remain the same if interchange fees doubled?
If the company could profitably charge more for their products, they already would be, regardless of what interchange fees (or other costs) were.
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While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
Fwiw I don't really care what the technical reason is, it's a rhetorical question to add to the ways the credit system holds back the poor.
You used to be able to deduct any consumer debt. But that stopped in 1986. The reason was "Congress believed deductions for personal interest encouraged people to consume and stifle savings."
https://www.telegram.com/story/news/local/worcester/2007/03/...
There used to be mostly piddling deductions for all sorts of things that you don't have today. It's probably mostly a positive to not keep track of things like sales tax in order to minimize your income tax.
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Even then I’m not sure how much it affected the poorer people, since you still had to overcome the standard deduction (lower, sure).
The deduction on mortgage interest now mostly only affects the well-off because the standard deduction for married filing jointly is so high.
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Which is kinda stupid, when the economy is based on people consuming.
I guess Reagan's friends at that point wanted more money for Wall Street to gamble.
> encouraged people to consume and stifle savings
Ironic in hindsight; every monetary and fiscal policy as of late seems to be designed to punish savers and reward debtors.
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To a first approximation, no one actually takes advantage of the mortgage tax deduction any more because the standard deduction is so high and the cap on state tax/property taxes is so low that most people don’t itemize.
Only about 10% itemize.
https://www.taxpolicycenter.org/briefing-book/what-are-itemi....
And the majority of those make more than $500K. The deductions are probably mostly some combination of mortgages on very expensive properties or very large charitable contributions, probably often tax-shielded in some manner.
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It was! Auto leases were deductible too which was a big subsidy for the auto industry.
Once rich people figured out how to get poor people to be angry about things like higher marginal tax rates for rich people and “death taxes”, we raised taxes on the suckers to benefit the richer people.
> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
AFAIK it's a carve out specifically for houses. Car loan interest isn't deductible despite being "secured".
It's a bargaining chip to get votes. If one party promises a larger tax saving on homes, then homeowners are more likely to vote for them.
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Granting a tax credit for something encourages that thing. So, from that perspective, I think it makes some sense to grant a tax credit for mortgage interest but not credit card debt.
Tax credit for mortgage interest encourages speculative investment in the housing market. Tax credit for credit card debt encourages consumer economic activity.
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Though one can write off losses from gambling in the US.
I wish the tax code had more a more positive slant per your point, but lobbying seems to be a bigger driver.
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HELOC debt is (since 2017 TCJA) now only deductible if used to purchase or upgrade/repair the house. And now the vast majority of people are not going to be deducting any mortgage or HELOC debt anyway, since the standard deduction is so high now.
> While we're in this topic: why is unsecured credit card debt NOT tax deductible but secured debt like HELOC is?
HELOC interest is rarely deductible either. First, you now must be able to itemize deductions, which the recent tax changes have made very unlikely. Less than 12% of tax returns are able to itemize:
https://www.irs.gov/pub/irs-soi/soi-a-inpre-id2303.pdf
In addition, even if you are in that ~11% who can itemize, HELOC interest is only deductible if you use it to work on the same house being used to get the LOC. Any other use is not deductible.
> the ways the credit system holds back the poor
It would be good to understand this better. Doesn't everyone use a credit card? Not just the poor? Who are the poor in this case? Are tax deduction rules anything to do with the credit system?
Are you aware that merchants charge more for goods and services so they can offset CC merchant fees? Even a cash paying poor person who cannot get a CC is paying for this.
My comment is to show another way this is perpetrated. People saddled with CC debt could dig themselves out faster if they could write off interest.
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The population likely to use HELOCs votes more and/or is more populous, so they have more votes.
Same reason Medicare (old people) pays healthcare providers more than Medicaid (young and poor people).
The real estate lobby is the largest lobby in the US.
Doesn’t seem like regulatory capture is the issue, if the market was totally free to new entrants and you brought in a low fee card with no rewards then it’s going to fail in an unregulated environment because merchants won’t go to the hassle of offering tiered pricing to low fee cards if they’re not already offering tiered prices for cash, so no-one’s going to give up their existing rewards to still have to pay the same prices. Deregulation just ends up stuck in a local minimum where everyone’s effectively paying for the highest fee cards that the merchant will accept.