The U.S. tax system favors a firm's use of debt because interest is tax deductible.

Name: The U.S. tax system favors a firm's use of debt because interest is tax deductible.
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Interest payments on debt are usually tax-deductible expenses for firms, which makes borrowing more attractive than raising equity capital. This preference for debt financing creates a tax advantage for firms that use debt, leading to a bias in favor of debt financing over equity financing in the U.S. tax system.

The US Tax System Favors a Firm's Use of Debt Because