The Tax Causes of the Economic Crisis

by James & Miel on June 21, 2009 · 0 comments

Hi All,

Bruce Bartlett over at Forbes has a great op/ed looking at another aspect of the economic crisis. His thesis: over taxation of corporate profits created structural incentives to pile on debt. They are simply adjusting to the “rules of the game” when it comes to building their companies wealth.

From Forbes:

It’s important to understand the origins of the economic crisis so that the correct policies can be implemented to end it and prevent its recurrence. Thus far, most attention has focused on monetary and regulatory policy. But a new study from the International Monetary Fund argues that tax policy played an important role as well.

The IMF study doesn’t cite any particular tax changes over the last few years that were responsible for generating the economic crisis. However, it points to a number of features of the tax code that contributed to it.

The most important problem identified by the IMF is the favorable tax treatment of debt and the punitive taxation of corporate equity in our system. This problem is exacerbated by a higher corporate tax rate in the U.S. than exists in most other countries, which magnifies the benefits of debt relative to equity.

Click here for the rest of it.

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