It’s a harsh reality, but here’s the truth: The government is content for you to stay in debt. In fact, they are happy for you to stay in debt. Why? Read on to find out not only why this is true, but what you can do to leverage this fact to your advantage.
Let’s look at taxes first. Taxes are more than just coffers from which the government can take the funds necessary to meet their obligations. The government can use taxes, however, to also achieve certain goals. Say for example they want the people to drink less alcohol. One way they can do that is to levy a tax on alcohol that makes it more cost-prohibitive to buy alcohol. Similarly, when they offer a tax incentive for delving deeper into debt, they are essentially sending the message that they are encouraging you to purchasing things you can’t afford, thereby going into debt. It doesn’t matter to the government coffers whether purchasing those items put you into debt; the tax you pay still goes into their pool of resources.
Need an example? Consider incentives that are offered for buying a home, such as those offered to first-time homebuyers. People who may not have been thinking about buying a home (likely because they couldn’t afford to buy a home!) may be incentivized to extend themselves a bit in order to take advantage of the incentive. Because virtually no one outside of the ultra-rich purchase a home out of cash, many people end up in debt just to take advantage of a government incentive. Once again, the government influences public behaviour through taxes and tax incentives. In a sneaky way, people who choose not to go further into debt (by buying a new home) are actually punished for their saving habits whereas those who do take the plunge are the ones who catch a break?
The government fully understands that they need tax-paying consumers to survive. They know that they need that tax money, and they will do whatever they can to incentivize consumers to pay it.
Another example of this is estate taxes. You have worked all your life to save and create a comfortable lifestyle for yourself in your golden years. Should you pass on, however, your beneficiaries could find themselves saddled with a hefty tax bill. So, your family is being punished for your diligent saving!
This all sounds pretty grim, right? Here’s the good bit: There are things you can do to leverage the fact that the government wants you to go into debt and make friends with your local credit repair companies. Once you understand what the government is doing, you can use that to your advantage. For example, you can acquire fixed-rate debts on the kinds of assets that will increase in value over time, such as real estate. And remember that there are instances when the government does offer incentive for you to save your money, so be sure you are taking advantage of that. Finally, owning a business is a good way to set yourself up for tax benefits as well.
There are lots of good reasons why the government wants to keep you in debt, but that doesn’t mean you have to play the game. There are things you can do to protect yourself.