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Tags: Taxes | Credit Cards

Obama's Economic Guru: Tax Credit Card Rewards

a credit card with rewards written on it
(Robert Goebel | Dreamstime)

Jared Whitley By Friday, 26 June 2020 12:03 PM EDT Current | Bio | Archive

Because the Black Plague was spread by witches, the solution, of course, was to kill cats. These cats, superstitious medieval Europeans figured, were disguised devils serving as the witches' "familiar spirits" to spread the plague. Problem solved!

Of course, this actually made the problem worse because witches weren't spreading the disease: lice on rats were, and with no cats to hunt the rats, the problem just got worse and worse. People who thought they had the answer picked the wrong bad guy and exacerbated the situation they were trying to fix.

And nowadays we're not much better off.

To help correct the problem of income inequality, so-called progressives are zeroing in on any instrument they can that, they say, hurts the poor and helps the rich. If they can eliminate these devils, problem solved!

One issue where progressives are trying to gain traction is credit card rewards, which they want to start taxing. Brookings Institution fellow Aaron Klein made this argument in a facepalm-inducing editorial for The Los Angeles Times, where he fatuously claimed that "the richer you are, the less you pay" at the cash register.

Klein's polemic, in brief, follows the logic that customers pay the same with cash as they do with a credit card, but merchants keep more money with cash so poorer customer are subsidizing wealthier customers and the fancy-pantsier the credit card, the bigger the subsidy.

His premise is rich … with problems.

The notion that credit cards are expensive and other forms of payment are free is wrong. Cash is very expensive to a retailer because that money a) has to be deposited or b) might get stolen, which is factored into their insurance rates. And most places won't accept personal checks at all because of the cost if they bounce.

Concerns about the effect of credit card-swipe fees (called interchange) for the poor are a misdirect by retailers who want to drive down their costs. Apparently still in an economic Dark Age, Europeans tried to solve the "plague" of interchange with regulation and have not saved consumers any money.

What's happened is big retailers have co-opted the language of those fighting income inequality! only to benefit themselves. Behemoths like Walmart, Amazon, and others want to accept credit cards, but also want to force Visa, Mastercard, and American Express to lower their costs. They're not trying to pass the savings on to you, they're want to take rewards away from you and pass the savings onto themselves.

To continue the medieval allegory, Walmart and Amazon are behaving like reverse Robin Hoods.

The fact that all are not benefiting from a financial mechanism doesn't mean that no one should. Restricting financial options for poorer people pushes them to riskier, and therefore costlier, alternatives such as pay-day lenders or even Mafia leg-breakers.

We've seen this as one of (many) disastrous effects of the Dodd-Frank financial reform legislation. The Durbin Amendment to that bill outlawed banks earning a profit off of their debit cards, which is why people no longer earn debit card rewards: banks can't make money on the transactions so they don't compete for the business.

Democrats keep refusing to learn the lesson that if you want more of something tax (or regulate) less of it. When President Trump cut taxes, federal tax revenue hit all-time highs. The more credit card companies can profit from free-market incentives, the more people will use them, and the more everyone will benefit. Sallie Mae has even started offering ways to pay down student debt with reward points!

Credit card rewards are a key component of the Financial Independence, Retire Early (FIRE) movement, a group of penny pinchers who pay everything with credit cards to a get better credit score and earn massive reward points. (They also, of course, make sure to pay their credit card bills on time.) Indeed, reward points are a great way to make thy gold multiply, as The Richest Man in Babylon would preach.

One must also consider the source for this profound misdiagnosis: Klein was deputy assistant secretary for economic policy for Obama's first term — the slowest recovery since the Great Depression — and the Los Angeles Times cannot figure out how to function in the modern world. They're economic flat-earthers. Klein even closes out his LA Times piece by praising China's digital wallet revolution — the one that's part of China's terrifying, Orwellian social credit system.

They have no business meddling with an economy that, temporary exigencies of the coronavirus notwithstanding, has been roaring for the last three years. If they want to do something productive, maybe they should go kill some cats.

Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. Read Jared Whitley's Reports — More Here.

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Because the Black Plague was spread by witches, the solution, of course, was to kill cats.
Taxes, Credit Cards
Friday, 26 June 2020 12:03 PM
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