Tax on interest

[Max B. Sawicky]

There's an argument (which I don't buy)
for not taxing capital at all.  I'd say
the profession is split about 60-40 in
favor of taxing capital.

mbs

Fair enough.  Let me put that differently: is there any justification in
economic theory for not charging corporations tax on their interest
payments?  It seems to me that mainstream economists should consider this
a distortion, since in pure theory, corporations should only borrow when
the cost of capital is lower than the expected profit.  It seems like a
distortion that is both obvious and pernicious (and not just theoretically
-- many ridiculous deals in the 80s only happened because of it).  Is it a
truism among mainstream economists that in a perfect world it would be
removed?

Michael