The interest as cost to firm is consistent with income to person. By standard principles of income taxation, you can tax one or the other, but not both, and it doesn't matter which. In this framework, the firm is just a veil for individuals so you can tax either dividends and/or interest at the firm or the individual level, but not at both levels. Currently we tax interest at one level (the person) and dividends at both (corporate and individual). Except for deductible IRA/401ks, where we tax neither until withdrawal.
For administrative reasons it is convenient to tax at the firm level ("source"), otherwise them fuckers will devise ways to slip cash to persons that escapes detection. Minsky is o.k. on the economics -- there's nothing wrong in principle with leaving all tax on persons -- but glosses over the evasion problem.
Tax attorney and former IRS commissioner once told me a dollar of tax deferred is a dollar of tax lost forever.
On Tue, Aug 31, 2010 at 5:53 PM, socialismorbarbarism < socialismorbarbarism at gmail.com> wrote:
> US federal tax, right? I'm no expert on the history of the tax code,
> but I thought in general, the idea is, households are taxed on income,
> business entities are taxed on profit. So the mortgage deduction is an
> exception--it is a subsidy for home ownership, and as far as I know,
> has always been understood that way. There is some student loan
> interest deduction, too. Here's one summary:
>
> 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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> >
>
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