Faculty Author Type

Current Faculty [Camden Hutchison]

Published In

Florida Tax Review

Document Type


Publication Date



legal history; income taxation; corporate finance


The U.S. tax code favors corporate debt over corporate equity, a distinction long criticized by economists, legal scholars, and other tax commentators as both theoretically and practically unsound. For decades, academics and policymakers from a variety of disciplinary and political backgrounds have argued that this so-called “debt-equity distinction” distorts corporate financing decisions, encourages excess borrowing, and invites troublesome tax-avoidance behavior. Surprisingly, despite widespread critical attention, the origins of this policy remain a mystery. Primarily focused on its contemporary significance, scholars have disregarded the distinction’s past. This article uses historical evidence to trace the debt-equity distinction’s origins, development, and continuing evolution. Citing legislative history, business lobbying efforts, and important changes in the broader historical context, it argues that the disparate treatment of debt and equity was never a conscious policy goal, but was rather the unintended outcome of an extended series of short-term political decisions. These political decisions were historically specific — i.e., formulated in response to temporary historical contingencies — but had consequences that have persisted to the present day. The article concludes by assessing the broader implications of this history for both the current structure of the U.S. tax system and the prospects of future tax reform.



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.