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Robin Hanson's avatar

Yes, sounds like a good and simpler suggestion.

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Overcoming Bias Commenter's avatar

Here's a simple plan: eliminate the tax advantage of debt. Equity is taxed twice, at the corporate level as profit, at the individual level as capital gains/dividends. Debt is actually an expense at the corporate level, and so is taxed advantaged (though ultimately, interest income to the individual is taxed).

This gives an incentive to increase debt. On obvious solution--that is politically impossible--is to set the corporate tax rate to zero, and then increase tax rates on individuals. Indeed, there are a lot of dead weight losses reduced there. But how about simply adding a tax based on debt? Interest expense could be taxed as if it were profit.

When we add distortions and then 'fix' them via more distortions, we aren't very good at anticipating the unintended consequences.

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