Tuesday , January 22 2019

Potpourri

Summary:
==> For some reason, I was thinking about debt forgiveness and how the IRS treats that as taxable income. (In a related point, when Oprah first started giving cars out as prizes, apparently the recipients were upset because they’d get hit with a huge tax bill. So then Oprah had to cover the tax liability too, for her gift of a car to people.) This came up I’m pretty sure in the wake of the housing bust, where even if a bank forgave somebody’s mortgage debt, the IRS would treat that as taxable income. Libertarians and normal people alike were outraged. However, notwithstanding that taxation is theft, given the structure, it actually makes sense. Forgiving a debt in terms of the accounting is equivalent to income. (The recipient’s ability to consume without

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==> For some reason, I was thinking about debt forgiveness and how the IRS treats that as taxable income. (In a related point, when Oprah first started giving cars out as prizes, apparently the recipients were upset because they’d get hit with a huge tax bill. So then Oprah had to cover the tax liability too, for her gift of a car to people.)

This came up I’m pretty sure in the wake of the housing bust, where even if a bank forgave somebody’s mortgage debt, the IRS would treat that as taxable income. Libertarians and normal people alike were outraged.

However, notwithstanding that taxation is theft, given the structure, it actually makes sense. Forgiving a debt in terms of the accounting is equivalent to income. (The recipient’s ability to consume without reducing capital goes up the same amount, whether you forgive $10,000 in debt or give the individual $10,000 in cash–at least if you assume the individual could borrow $10k from somebody else, which I agree might be dubious and partly what’s driving the outrage in the Oprah/mortgage examples.)  

Anyway, it occurred to me that if the IRS didn’t treat debt forgiveness as income, then a company could hire someone, lend him $100,000 at the beginning of the year, and then just be “nice” and forgive the loan in equal installments each month. The company could still deduct the $100k as a business expense, but the individual wouldn’t have to report it as income, since a loan is not income.

==> I was reading SlateStarCodex and he linked to this previous post from 2014, which I had read at the time, but it was excellent.

Robert Murphy
Christian, Austrian economist, and libertarian theorist. Research Prof at Texas Tech and author of *Choice*. Paul Krugman's worst nightmare.

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