The other part of the debt problem

I came upon a site called Business Writing Services. The site offers to write an essay or term paper or research paper for me. It has a "Live Chat" option and two "Order Now" buttons. Needless to say, it is not my kind of place.

https://www.businesswritingservices.org/business-finance/372-factors-that-influence-the-cost-of-finance

But there is this, under the heading "Factors that Influence the Cost of Finance":

Effects of taxation – Debt finance is cheaper by the amount equal to tax on interest and this means that debt finance will entail a saving in cost of finance equivalent to tax on interest.

It describes the precise amount that debt financing can be less costly than some other methods of paying for things. They're talking about reducing your tax by taking advantage of the tax deduction. Anymore, this applies mostly to business.

"Debt finance is cheaper by the amount equal to tax on interest". That's the line that struck me. You borrow, you pay interest, you deduct the interest from your taxable income, and the tax you pay is less as a result.

See, you couldn't do that if you stole the money, or printed it yourself. You also couldn't do it if you worked to earn that money or issued more stock in your company. The tax advantage arises because you borrowed the money.

The tax code creates economic behavior which increases the use of credit and the growth of debt.

Felix Salmon says 

Just as America’s obesity problem is largely a function of the ubiquity of cheap high-fat food, America’s debt problem is a result of the ubiquity of cheap easy-access credit.

Salmon should know better. "Cheap easy-access credit" is only part of the debt problem. The other part is that policy encourages both the use of credit and the ubiquity of access to it.

This is from memory, but I think consumers could deduct all their interest costs from taxable income until around 1990. After that, only home mortgage interest was deductible. And according to Wikipedia, as of 2018 interest on home equity loans is no longer deductible.

Most of the interest deductions for consumers are gone now. The increase of debt got a boost because of those deductions but, unfortunately, the debt didn't go back down again when they took the deductions away. And now things are so bad that it's almost impossible to avoid going deeper in debt.

Most of the interest deductions for business still exist. Business still gets a tax break for using borrowed money. Again, this encourages the growth of finance and the growth of debt.

If you have economic policies that encourage borrowing, but you don't also have economic policies that encourage the repayment of debt, then debt will grow unnaturally fast and will reach an unnaturally high level. Even now, by the way, debt is still going up.

When policymakers eliminate tax breaks that encourage borrowing, rather than replacing them with tax breaks that accelerate the repayment of debt, they are not fixing the problem.