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View Diary: The Interesting Economics of Rolling Jubilee (92 comments)

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  •  can't, else a tax consequence. (15+ / 0-)

    1)  If VISA negotiates your $10K debt down to $1K, they have to send you an IRS form 1099 for the $9K and you have to pay tax on it.

    2)  If your rich cousin Bob buys out your specific $10K debt and pays it off, that counts as a gift to you, and below about $12K there's no tax consequence to you.  However, he earned the money he used to pay it off, so he has to pay tax on that income, even if he effectively gave it away.  

    Assume he bought the $10K debt for $500, and his tax rate is 50%, he has to pay another $250 to the IRS.  That's not so bad for one person to deal with (maybe he's a lawyer who charges $500/hour for his time, so he can make it back in 1/2 hour), but it could be a big money drain on an organization that tried to do it this way.

    3)  Now let's say Rolling Jubilee does this instead, and we can reasonably assume they're a 501(c)3 charitable organization.  Your rich cousin Bob donates $500 to Rolling Jubilee: it's tax-deductible, he does not pay tax on the $500 of income he earned and donated.  At the other end of the process, Rolling Jubilee buys some random $10K of debt and makes it go poof!, but they have no control over who is being benefited by that.  

    Since the benefit is distributed randomly to a needy population via a charitable mechanism, and is not directed toward specific individuals who are hand-picked for arbitrary reasons ("he's my cousin"), there is no tax consequence to those who are given the benefit.  It's just a scaled up version of a food bank, where any person who shows up and asks for food can receive a couple of grocery bags' full.  

    Sooner or later, someone else donates money to Rolling Jubilee and this time it happens that your debt is one of the ones that gets poofed!.  You don't know who the generous person was whose money made your debt go away.  They don't know you.  It's pure random charity, so there is no taxable event at either end of it.

    And that makes the mechanism much more efficient in terms of the total flow of money involved: when wealthy donors write big checks, they don't have an effective overhead cost of 30% or more in taxes for doing so.

    Meanwhile, as diarist has said, the amount of this money that is bailing out irresponsible nincompoops is minimal.  In fact I'd guess it's less than the tax consequence would be if Rolling Jubilee used a targeted beneficiary mechanism that generated taxable events.

    And in any case, even if it does bail out an occasional irresponsible nincompoop, chances are it's turned him or her into a ferocious idealist as a result.  

    If you could turn an irresponsible nincompoop into a ferocious idealist, wouldn't you do it?   I sure would.

    We got the future back.

    by G2geek on Fri Nov 16, 2012 at 01:18:05 AM PST

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    •  I'm a receptionist and (2+ / 0-)

      I happen to work with one of those irresponsible nincompoops. He is a full grown man, in his thirties and he has ZERO vacation and sick time because he uses it as soon as he 'earns' it (he has no major physical illness). He loves the somewhat local casino. He gets a lot of calls from collection agencies. I feel sure that, if his debt were magically cleared, it would not be long before he had a new set of debts and nothing would change for him or about his life.
      HOWEVER
      I do believe that his type is a minor part of what is being forgiven by the Rolling Jubilee and I am willing to risk bailing out some of those folks to erase the debts of others who will truly benefit and to make a statement to the banksters.

      When lots of people show up to vote, Democrats tend to win.

      by Audri on Fri Nov 16, 2012 at 08:05:17 AM PST

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    •  This (1+ / 0-)
      Recommended by:
      Larsstephens
      And in any case, even if it does bail out an occasional irresponsible nincompoop, chances are it's turned him or her into a ferocious idealist as a result.
      Yes, if I'm an irresponsible nincompoop (and, really, it depends on who you ask) and I get my debt discharged at random, I'm going to do what I can to help further the process. Instant karma.

      How many times I've said "YES! This person and I think just alike!" and I look down and it's G2geek again...

      -5.38 -4.72 T. Atlas shrugged. Jesus wept.

      by trevzb on Fri Nov 16, 2012 at 09:05:03 AM PST

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