> For individuals you could argue that it should be
> the same as for businesses, on the analog that an
> individual's transactions are his own 'business.'
The usual reason given for business deductability of "any reasonable expense" is that it's typically in the self-interest of a business to only spend money in the pursuit of revenue (so: you scratch my back, I'll scratch yours). That's all out of whack these days[*], but it's at least consistent. Whereas an individual spends money for lots of reasons other than making money (hey kids, let's go to DisneyLand!).
> There is of course a blur between personal borrowing and use of
> home equity (interest on which is deductible).
Morgage interest is deductable in the US because of the policy goal of home-ownership, not because there's any other good reason. Home Equity interest has, of course, been abused, though the abuses should be going down over time due to some curve-balls thrown in by the IRS ($ limits, mostly). Also home-equity interest is typically a single-event: you borrow the money and spend it; it's kind of the reverse of a down-payment. It's not a way to fund 'ongoing operations' so it self-limits.
Anyway, that's the tax angle: interest isn't special; nearly everything at the corporate level is deductable.
/jordan
[*] When a large public corporation buys a $10M jet instead of ~$100k/yr of commercial airline tickets, it only really "hurts" to the tune of pennies (if that) per share. It's a tragedy of the commons, if you will.