tax arbitrage, expensing, IRC Section179, IRC Section 265, IRC Section 103, interest deduction, expensing business assets
The difficulty of envisioning an effective provision that would deny interest deductions in this context may be reason enough to advocate for the alternative proposal described at the beginning of this viewpoint. The mixing of consumption tax provisions with the income tax treatment of debt in the U.S. tax system already provides too many opportunities for tax arbitrage. The expensing proposal would exacerbate these problems. The alternative proposal of broadening the base and lowering the rates (especially if coupled with eliminating the capital gains preference and integrating the corporate and individual taxes) would go far toward reducing the unfortunate mixing of consumption and income tax provisions in a single tax system that already provides too many tax arbitrage opportunities.
Deborah A. Geier, Expensing and the Interest Deduction, 116 Tax Notes 1069 (2007)