by JoshTriplett | 2025-05-30 17:57:10+00:00
> Suppose people making $1M+ are taxed at 20%, and everyone else is taxed at 25%.

That model is not analogous to the credit card situation, in multiple ways. Among other things, it's framing this as a "tax" (which isn't inherently the right model), and presupposing that the origin of the "tax" is the credit card interchange, and mapping the "rewards" programs to a discount on the "tax" but not mapping anything else (e.g. free checking or the availability of credit instruments that wouldn't otherwise be available) to that, with a lot of assumptions about which parts of the overall system to include and map, and which parts to leave out. The net result seems like a cherry-picked conclusion to fit an agenda. If you decide in advance what you want the model to show, you can make a model to show it, but that doesn't mean that model is an accurate representation of the system.

When I said "rich people spend more in total at the store so their interchange costs are more than made up for by actual spending", I mean that on balance, they are not "costing" the merchant more, they are giving the merchant more money.

Card companies/issuers charge interchange so that the credit card company makes money; they don't do it with the primary goal of funding rewards programs, or free checking, or the other things they do for marketing purposes. That would be like saying "the primary reason this company charges for their product is to spend money on marketing programs". Credit card companies didn't pick their interchange rates on the basis of funding reward programs, specifically; they set their rates to make money for themselves.

Also, to the best of my knowledge, current law no longer allows credit card companies to prohibit merchants from charging a premium for using credit cards, or for using specific credit cards. (Credit card companies used to do this, which effectively made them a cartel engaging in price-fixing.) e.g. there is nothing preventing merchants from charging less to people with cards that cost less to accept, such as debit cards or less "premium" credit cards. In theory, doing so might create competition for cards with lower interchange, or incentives for people to stop using rewards cards. In practice, however, merchants don't do this. Given that, you could just as easily portray this as a model where merchants are choosing to value the custom of higher-income people (e.g. because they spend more) over the custom of lower-income people. I don't think that's an accurate model either, though.

I think it is reasonable to observe that credit card companies have way way way too much power to set prices for merchants, and treat that as a problem worth solving. I don't think pitting low-income and high-income people against each other is a productive way to solve that. The point of my previous comment, and of the thread I linked, was that neither low-income nor high-income people are on net "making money" from the existence of interchange or from any form of rewards programs. Credit cards make money from both low-income and high-income people alike, and make more money from high-income people, and neither one is subsidizing the other.

(Also, I'm very rapidly reaching my limit for how much energy it's worth investing into a conversation. Frankly, at this point I think anyone interested in the evidence or the accuracy of any particular model has that information available, and anyone interested in pre-deciding a conclusion without caring about the evidence has had that option the whole time, and I don't see much value in continuing. There doesn't seem to be disagreement here on the point that credit card interchange is too high, and that's not a good thing. There's disagreement on whether it's either accurate or useful to frame that as a subsidy from poor people to rich people. By "accurate" I mean "is it actually an accurate model of how the system works, for the purposes of understanding and changing the system", and by "useful" I mean "does that model actually help effect change, rather than just provoking outrage". I don't particularly think the framing as a "subsidy" serves either of those purposes.)