ARTICLE: TAXING PROMETHEUS: HOW THE CORPORATE INTEREST DEDUCTION DISCOURAGES INNOVATION AND RISK-TAKING Skip over navigation
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Copyright (c) 1993 Villanova University
Villanova Law Review

ARTICLE: TAXING PROMETHEUS: HOW THE CORPORATE INTEREST DEDUCTION DISCOURAGES INNOVATION AND RISK-TAKING

1993

38 Vill. L. Rev. 1461

Author

Michael S. Knoll *

Excerpt



Abstract
 
This paper uses recent developments in the theory of optimal capital structure to demonstrate how the federal corporate income tax with an interest deduction, but without a corresponding dividend deduction, misallocates capital within the corporate sector by encouraging investment in low-risk, low-growth projects employing tangible assets over high-risk, high-growth projects employing intangible assets.


I. Introduction
 


PROMETHEUS is fabled to have created man out of clay in the image of the gods and to have taught his mortal progeny the various arts and sciences. Mankind's resulting obsession with creating and building left little time for worshipping the gods. That angered a jealous Zeus, who responded by extinguishing all earthly fires, causing much suffering on Earth. Troubled by the plight of his mortal progeny, Prometheus stole fire from Mount Olympus and brought it back to Earth in a hollow fennel stalk. For his transgression, Prometheus was severely punished by Zeus, 1 who permitted mankind to keep fire and continue to practice the arts and sciences. 2

For his gifts to the human race, Aeschylus treats Prometheus as humanity's preserver in Prometheus Bound. 3 That view is echoed in English literature, in which Prometheus is frequently depicted as a courageous champion of humanity. 4 In the English language, the term Promethean has come to mean boldly creative and defiantly original. 5 It is commonly used to describe significant technological advances. For example, the microprocessor 6 and fusion power 7 have been described as Promethean, as have Gordon Moore's laboratory at ...
 
 
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