TW: Suroweicki has a nice concise piece on the bias towards debt baked into our tax system. Mortgage interest and business interest deductions create a bias towards debts commercially and privately which feeds our collective appetite for debt. Read the piece, the logic is simple. Now will these well liked forms of crack ever go away of course not but when someone rails against guvmint ask them if they are ready to ready to remove their own debt IVs.
From Jim Suroweicki at New Yorker:
"...The government doesn’t make people go into debt, of course. It just nudges them in that direction. Individuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments. Likewise, the system skews the decisions that companies make about how to fund themselves. Companies can raise money by reinvesting profits, raising equity (selling shares), or borrowing. But only when they borrow do they get the benefit of a “tax shield.” Jason Furman, of the National Economic Council, has estimated that tax breaks make corporate debt as much as forty-two per cent cheaper than corporate equity. So it’s not surprising that many companies prefer to pile on the leverage..."
Read more: http://www.newyorker.com/talk/financial/2009/11/23/091123ta_talk_surowiecki
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