The Economist notes –
“THE field for the
title of world’s worst economic distortion is a crowded one. Fuel subsidies in
the emerging world are one contender; the implicit government guarantee that
props up big banks another. But it is a less noticed and more pervasive warping
of the economic fabric that is the most damaging. Despite the fact that the
world is mired in debt, governments make borrowing costs tax-deductible,
cheapening debt and encouraging borrowers to pile on more.
Tax breaks for debt
come in two principal forms. Interest payments on mortgages are tax-deductible
for personal tax purposes in at least some way in America and over a dozen
European countries, including Belgium, Italy, the Netherlands, Spain,
Switzerland and most Nordic states. And across the world firms can deduct
interest payments to debt-holders from their taxable earnings. In contrast the
dividend payments and retained profits that flow to shareholders are taxed in
most places.”