How to Think About and Teach Income Tax When Interest Rates are Zero
4 Pages Posted: 15 Aug 2016 Last revised: 7 Sep 2016
Date Written: August 12, 2016
Abstract
In this article, I discuss how near-zero interest rates — which virtually eliminate the time value of money — should change our thinking about the importance of particular tax doctrines, as well as our targets for tax reform. Doctrines that determine timing of income, such as capitalization vs. deduction of expenses, matter much less than they used to. Similarly, the theoretical benefits of a consumption tax become irrelevant when interest rates are zero. The time and energy spent on these topics should be reduced accordingly. Doctrines that deal with income shifting between different income tax rates, by contrast, assume greater importance.
Keywords: Interest Rates, Income Tax, Consumption Tax
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