In the context of corporate finance, the tax benefits of debt or tax advantage of debt refers to the fact that from a tax perspective it is cheaper for firms and investors to finance with debt than with equity. Under a majority of taxation systems around the world, and until recently under the United States tax system, firms are taxed on their profits and individuals are taxed on their personal income. For example, a firm that earns 30 in taxes. If it then distributes these profits to its owners as dividends, then the owners in turn pay taxes on this income, say 70 of dividends. The 50 of investor income. If, instead the firm finances with debt, then, assuming the firm owes 30. This implies for 70. This tax-related encouragement of debt financing has not gone uncriticized. For example, some critics have argued that the cost of equity should also be deductible; which could reduce the Internal Revenue Code's influence on capital-structure decisions, potentially reducing the economic instability attributable to excessive debt financing.