This is the effective corporate income tax rate:
|Graph #1: Effective Corporate Income Tax Rate|
This is the money corporations paid out as interest expense:
|Graph #2: The Cost of Interest to Corporations|
|Graph #3: Additional Tax Paid by Corporations if Interest Was Not Deductible|
What if we take this additional tax that corporations would have paid, and see what happens to the Federal deficits when the extra revenue is added in:
|Graph #4: Actual Deficit (red) and Deficit Reduced by Taxing Interest Expense (blue)|
Of course, everything else would not stay the same. Corporations would borrow less. Adjustments would have to be made. Perhaps there would be fewer mergers and acquisitions. Perhaps policy would be forced to shift away from the reliance on credit.
I can't tell you specifically what would change. I can tell you, though, that there would be less debt, and less credit use. And I can tell you that our economy can function on less credit. There was far less credit in use in the 1960s, for example, than there is today. And the economy was good.