Comments on: Debt taxation datapoint of the day http://blogs.reuters.com/felix-salmon/2010/02/08/debt-taxation-datapoint-of-the-day/ A slice of lime in the soda Sat, 25 May 2013 00:03:13 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: agc2 http://blogs.reuters.com/felix-salmon/2010/02/08/debt-taxation-datapoint-of-the-day/comment-page-1/#comment-11874 agc2 Tue, 09 Feb 2010 16:20:09 +0000 http://blogs.reuters.com/felix-salmon/?p=2515#comment-11874 Does this analysis includes the fact that debt financing fees are amortizable whereas equity financing fees are neither amortizable or deductible. And, of course, equity financing fees are way higher as a % of capital raised. Does this analysis includes the fact that debt financing fees are amortizable whereas equity financing fees are neither amortizable or deductible. And, of course, equity financing fees are way higher as a % of capital raised.

]]> By: wcw http://blogs.reuters.com/felix-salmon/2010/02/08/debt-taxation-datapoint-of-the-day/comment-page-1/#comment-11871 wcw Tue, 09 Feb 2010 15:03:32 +0000 http://blogs.reuters.com/felix-salmon/?p=2515#comment-11871 The debt tax shield has always struck me as addlepated, both on corporate and personal (mortgage interest) levels. Then again, I am neither a levered corporation nor a mortgageholder. I am sure I would understand the appeal just as soon as I started getting my sweet government subsidies. How I pine for some sweet government subsidies of my very own. The debt tax shield has always struck me as addlepated, both on corporate and personal (mortgage interest) levels. Then again, I am neither a levered corporation nor a mortgageholder. I am sure I would understand the appeal just as soon as I started getting my sweet government subsidies.

How I pine for some sweet government subsidies of my very own.

]]> By: david3 http://blogs.reuters.com/felix-salmon/2010/02/08/debt-taxation-datapoint-of-the-day/comment-page-1/#comment-11868 david3 Tue, 09 Feb 2010 13:05:19 +0000 http://blogs.reuters.com/felix-salmon/?p=2515#comment-11868 A 12/20/07 U.S. Department of the Treasury Office of Tax Policy report shows that the marginal effective tax rates on debt v. equity financed investments did not change much by 2007. See pages 81-84 of the actual report. http://www.treas.gov/press/releases/reports/hp749_approachesstudy.pdf A 12/20/07 U.S. Department of the Treasury Office of Tax Policy report shows that the marginal effective tax rates on debt v. equity financed investments did not change much by 2007.

See pages 81-84 of the actual report.

http://www.treas.gov/press/releases/repo rts/hp749_approachesstudy.pdf

]]> By: dWj http://blogs.reuters.com/felix-salmon/2010/02/08/debt-taxation-datapoint-of-the-day/comment-page-1/#comment-11858 dWj Tue, 09 Feb 2010 04:18:58 +0000 http://blogs.reuters.com/felix-salmon/?p=2515#comment-11858 CGG: it's not quite as radical as you seem to suggest if you transition to the system; if you say "debt issued after 2010 cannot have its interest deducted", or even allow a little bit of rolling over of maturing debt, you can get to a new equilibrium ("ordinary/necessary") without really punishing anyone for previous decisions; companies can retain earnings and issue more equity. You can lower the tax rates at the same time if you like; some industries that are more debt-heavy right now would see their taxes go up, but if all of your competitors' costs are going up, you can pass that along to your customers. Note that this kind of phase out would remove the tax incentive on short-term debt the soonest; longer-term debt isn't quite as big a systemic risk (though it certainly contributes). CGG: it’s not quite as radical as you seem to suggest if you transition to the system; if you say “debt issued after 2010 cannot have its interest deducted”, or even allow a little bit of rolling over of maturing debt, you can get to a new equilibrium (“ordinary/necessary”) without really punishing anyone for previous decisions; companies can retain earnings and issue more equity. You can lower the tax rates at the same time if you like; some industries that are more debt-heavy right now would see their taxes go up, but if all of your competitors’ costs are going up, you can pass that along to your customers. Note that this kind of phase out would remove the tax incentive on short-term debt the soonest; longer-term debt isn’t quite as big a systemic risk (though it certainly contributes).

]]> By: CGG http://blogs.reuters.com/felix-salmon/2010/02/08/debt-taxation-datapoint-of-the-day/comment-page-1/#comment-11856 CGG Tue, 09 Feb 2010 00:34:58 +0000 http://blogs.reuters.com/felix-salmon/?p=2515#comment-11856 Though the idea makes sense to me, I'm worried about starting to disallow deductions for something that is by any measure a ordinary/necessary business expense. I'm curious about this bit though: "much of that interest income is received in various accounts in which it is not taxed." Seems to me that somewhere somebody has to be making money on interest - and that should be taxed. If it's not - perhaps subjecting those accounts to taxation is a better solution than the one proposed here. Also - a related solution: how about ending the double tax on dividends to make equity financing attractive? Though the idea makes sense to me, I’m worried about starting to disallow deductions for something that is by any measure a ordinary/necessary business expense.

I’m curious about this bit though: “much of that interest income is received in various accounts in which it is not taxed.” Seems to me that somewhere somebody has to be making money on interest – and that should be taxed. If it’s not – perhaps subjecting those accounts to taxation is a better solution than the one proposed here.

Also – a related solution: how about ending the double tax on dividends to make equity financing attractive?

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