Tax debt, not interest

If lenders paid tax in proportion to the principal rather than the interest — or, equivalently, if the principal were deemed to be earning a certain interest rate for income-tax purposes, whether the interest were being paid or not — then lenders would have an incentive to write down the principal of impaired loans, in order to avoid paying tax out of proportion to the realistic value of the loans.

[Comment by Gavin R. Putland on an article at The Conversation. Cf. “Land-Backed Debt as a Revenue Base”.]