I often discuss clear taxes on Mitavaya, such as doing capital income. Many of these taxes discourage saving by imposing a higher tax rate on future consumption than on current consumption. But there are also many hidden taxes on austerity, such as the denial of government benefits to people based on lack of “need”.
Many recent college grads are about to get one $10,000 gift from the federal government. My daughter won’t get that gift, because her parents were frugal and so she didn’t borrow money to go to college.
Today, I feel like a sucker. If I encouraged him to borrow $10,000 for college. I guess public choice theory isn’t my forte, because I didn’t see it coming. I wonder if Bill Gates was smart enough to lend his kids $10,000.
There are many other examples of government benefits that are based on “need”. I use fear quotes for need because in almost all cases the criterion is not true need, it is at least partially related to frugality. And since (on average) the total lifetime earnings of college students are higher than the earnings of those who did not attend college, it is not clear that loan forgiveness has any merit on “equity” grounds. As for efficiency, this policy not only reduces the incentive to save, it also encourages colleges to be less careful about keeping costs down.