I think this is an interesting populist notion, one which I've been noodling with for a while.
Presently you can get deductions for saving in IRA's and employer-paid pensions. For economists, debt repayment is saving too, but no deduction is forthcoming. There ain't no justice.
If there was a deduction in the income tax for total net saving, it would be possible to define debt repayment as a tax deduction. It would have to be set up to preclude borrowing in anticipation of the law -- e.g., debts between a date before which the law could not have been anticipated and the date of enaction would be exempt. Debts after enaction would be eligible, but here's the catch: borrowing would have to be taxable. If you're going to allow a deduction for debt repayment, you have to make the debt assumption taxable.
The result is called a 'cash-flow income tax' and is equivalent to a consumption tax. Unlike VAT's or sales taxes, however, in the personal income tax you have the standard deduction, exemptions, and graduated rates. So this sort of consumption tax can be progressive.
> Anyway, something like this would spur economic growth among the lower
> classes, no? Also, a debate on the issue could highlight the predatory
Growth effects are much to be doubted.
> practices of some credit companies that prey on those in debt, only to get
> them in higher debt, with huge interest rate payments.
Yup.
> Anyone know of anything written on this subject?
I'd be curious too.
MBS