I often discuss explicit taxes on thrift, such as taxes on capital income. Many of these taxes discourage saving by applying a higher tax rate on future consumption than current consumption. But there are also many hidden taxes on thrift, as when government benefits are denied to people on the basis of a lack of “need”.

Many recent college grads are about to get a $10,000 gift from the federal government. My daughter won’t receive that gift, because her parents were thrifty and hence she did not borrow money to go to college.

Today, I feel like a sucker. If only I’d encouraged her to borrow $10,000 for college. I guess public choice theory is not my forte, as I never saw this coming.  I wonder if Bill Gates was smart enough to have his kids borrow $10,000.

There are many other examples of government benefits that are based on “need”.  I use scare quotes for need because in almost all cases the criterion is not truly need, it’s at least partly related to thrift.   And because (on average) the total lifetime earnings of college students exceeds the earnings of those who didn’t go to college, it’s not obvious that debt forgiveness has any merit on “equity” grounds.  As for efficiency, this policy not only reduces the incentive to save, it encourages colleges to be less careful about holding down costs.