http://www.wwwebtax.com/deductions_interest/interest_deductions.htm
Free tax advice is available all over the Internet--is this a good thing? OK, that's a tangent... ;)
Here's one easy way to think about it: Business interest is paid by risk-taking entrepreneurs, the engines of the system upon which we all depend, otherwise life as we know it would be unsustainable, and taxing them for this contribution to humanity would be not only immoral but self-defeating for society as a whole. Personal interest is paid on personal debt, which is undertaken by wastrels and lowlifes and others of a generally self-indulgent moral character who shouldn't be supported by the taxpayers for their profligacy, believe you me. Except for homeowners, who, because they are homeowners and not irresponsible renters, are not wastrels and etc. and are actually contributing to society.
I wish the last paragraph was a joke, but this is the crux of what I remember being told by a tax attorney (social situation) ten or so years ago, who seemed serious. Yeah, it stuck with me.
Moralistic nonsense aside, there are non-right-wing economic arguments that the household/business entity distinction is an important one for tax policy, and that high taxation of business entities isn't necessarily what one wants. Minsky, for example, not a reactionary, argued for a *zero* corporate tax, but he was assuming a steeply progressive personal tax rate and a strong activist government committed to ending unemployment. (Hah.) In 1937, when Poland was still capitalist, Kalecki argued that even progressive income taxes (none paid by workers, only by capitalists; 100% of income tax revenues as transfer payments to low-income workers) wouldn't end up really helping workers due to investment trade-offs. He instead argued for a wealth tax--well, I think that's what he argued for, because it's called a "capital tax" in the translation I have*, but "wealth tax" seems the concept that fits, as his entire focus is on the taxation of individuals, not business entities. Not that Kalecki ever expected to see an actually existing wealth (?) tax: "It is difficult to believe, however, that capital [wealth?] taxation will ever be applied for this purpose on a large scale; for it may seem to undermine the principle of private property, and therefore in this case, as in general, [Kalecki then quotes Joan Robinson] 'any government which had both the power and the will to remedy the major defects of the capitalist system would have the will and the power to abolish it altogether.'"
* "A Theory of Commodity, Income and Capital Taxation," in "Selected Essays on the Dynamics of the Capitalist Economy 1933-1970"
On Tue, Aug 31, 2010 at 9:22 AM, Michael Pollak <mpollak at panix.com> wrote:
>
> What's the rationale and origin for the tax deductibility of interest
> payments? Besides mortages -- I understand the original rationale there.
> But I don't understand it for any other business or consumer financing. And
> was there a specific moment in time when this decision was taken or did it
> just sort of accrete?
>
> Michael
>
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