No. of Recommendations: 1
PMcMullenCT writes:

You'd pay your own tax on income, then the interest payments to Citibank would be taxable as income for Citibank. For that matter, every dollar you spend is double taxed - taxed as your income when earned by you, and then taxed again when it generates profit for a business when you purchase goods or services. The same thing happens with your 401K, as the loan generates income for your retirement account, much the same as if it were invested in stocks or bonds.

Hmmm... My guess is with that convoluted logic you must be a government economist looking at the macro picture. :-)

Personally, I think your position is balderdash. I, as an individual, won't get taxed again on interest paid to a bank. In fact, depending on the type of credit used, I might even get a tax deduction. To me, that's not "double taxation," but a tax break. Further, the fact that the "interest" I pay into a tax deferred account (with already taxed dollars mind you) will get taxed again when withdrawn is a loss -- not a gain -- to me, personally. That money is really not income to me. It's forced savings out of current net earnings to replace money that MIGHT have been earned because I was an idiot and borrowed from my deferred retirement plan. Therefore, it's fine or penalty for the loan, not income, but it will be taxed as such later. Thus, from a personal viewpoint, I might win in the first instance, but I definitely lose in the second.

The economist might be concerned about "double taxation" when the banker gets taxed on income that business earns. I am not because that's how the economy works. I only care when I get taxed again on any of my money that's already been taxed. That, at least in my mind, is the only "double taxation" that really matters.

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