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Universal Tax Break

What would happen if you did not have to pay income tax every seventh year?
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Historically, the U.S. economy has cycled through booms and busts. Taxes are an important driver of both conditions. When an economy is in boom - particularly after a few years - spending starts to slow down because uncertainty about how long it will last creeps in. Government attempts to spur spending by issuing tax rebates, or 'stimulus' refunds.

Why not just plan to give everyone a tax-free year every few years or so? Make it automatic and based on an uneven number of years so it does not always factor in an election year.

Knowing, in advance, that you were going to have, at regular intervals, an 'additional' chunk of cash large enough to spend on things like home improvements, major item purchases or, better, personal debt reduction would increase individual confidence and make them more willing to take on manageable debt loads.

Net revenues to the government would follow a cyclical pattern that would see a drop in revenue in one year but increased revenues in subsequent years enough to at least meet the (temporary) deficit caused by the tax holiday. And Congress would have incentive - not that they don't already - to see to it that the temporary deficit caused by the holidy is as minimal as possible by controlling spending in the years prior to the holiday. Certain government functions, such as funding a war, would still be unaffected by a tax holiday, but would determine the extent of a deficit.

Tax rates would not necessarily change. Sales and other taxes would not be affected - though perhaps they could also be given a holiday on the same basis, just not the same year.

A pre-planned tax holiday for everyone would eliminate the debate over tax cuts benefiting the rich over the poor.

Moonguy, Jun 05 2008

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       But an income tax holiday _would_ benefit the rich over the poor, because rich people pay more income tax than poor people.
FishFinger, Jun 05 2008
  

       //The rich pay more taxes than the poor//   

       So why are the poor complaining? The point is that everyone gets a tax break at a useful interval. The fact that Mr. Six-Figures gets a tax break is completely irrelevent to Ms. Minimum Wages: her only concern is that she gets a break she can actually do something with.   

       Semi-related side point: Ms. Minimum Wages would likely benefit from Mr. Six-Figures tax break too, because he is more likely to invest some of that money in a way that increases employment opportunities Ms. Minimum Wages can exploit. Whether she follows through or not is out of Mr. Six-Figures' hands. . .
Moonguy, Jun 05 2008
  

       Rich people would arrange to receive income only on those years free of tax.
bungston, Jun 06 2008
  

       A fatal flaw, if ever I've seen one.
Texticle, Jun 06 2008
  

       //Rich people would arrange to receive income only on those years free of tax.//   

       That might certainly be tried! 'Couple problems though: How could they make seven years worth of income in just one year? 'Income' includes dividends on investments which must, by law, be reported by the companies paying out. There is no mechanism that would allow an investor to hide these dividends that would not also cause him to lose the income - his only choice is to have the dividends paid to some kind of entity (company, bank etc.) that he/she controls without actually being named as holder of controlling interest. This is practically impossible even now.
Moonguy, Jun 06 2008
  

       You know, independent of politics, this will never work. Here's why: We can't trust the government to spend wisely anyway. Can we really trust it to spend wisely enough for six years that the seventh year will be funded with six years' worth of surpluses?
shapu, Jun 06 2008
  

       No, we can't. That is why I want taxpayers to get to spend their tax money on themselves one year out of seven - they know better than the government what their own needs are. Another way of saying this is the taxpayer would spend six years out of seven 'taking care of others' with their tax dollars. The seventh year holiday is when they get to take care of themselves.
Moonguy, Jun 06 2008
  
      
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