Tax Deductibility of Interest On Consumer Debt

In theoretical and practical discussion of the income tax treatment of personal expenditures, interest cost on consumer debt has been a persistent subject of misunderstanding. This article shows the source of the misunderstanding to be twofold: an erroneous theoretical conclusion that deduction of consumer interest cost is inconsistent with an ideal definition of income, and a confusion about the "second best" treatment of interest cost incurred to purchase durable goods when the tax law already lapses from the ideal by not inputing rental values. The article suggests that even for durable goods purchases the continuance of deductibility is probably best.