tempering excess

I’m guessing this will be on the table soon enough:

Excessive leverage is highly destabilizing to the financial system.

Companies borrow, in part, because they believe that debt capital is cheaper than equity capital. That is certainly the case under the U.S. corporate tax system because interest is a deductible business expense in calculating income subject to tax whereas dividends are not deductible.

Interest deductibility could be phased out over the next 10 years.

Next year, 90 percent of interest would be deductible; the following year, 80 percent would be deductible, and so forth, until interest would no longer be deductible at all.

With this simple change, the federal government would encourage businesses and households to become less leveraged.

We have learned that leverage makes not only individual companies more vulnerable to failure but also the economy less stable.

We use tax laws all the time to promote socially desirable behavior; eliminating the deductibility of interest would reduce the risk of failure of large companies—especially, large firms—and thereby reduce the collateral damage inflicted by such failures.