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Cyclical Taxes at a Glance


Cyclical fiscal policy is a non-interventionist approach to taxation. Local taxes that are handled with a cyclical fiscal policy follow the trends of the market. Cyclical policies are most often adopted when the local and state governments are not running a budgetary deficit and the state economy is doing well.

The cyclical fiscal policy is the states means of keeping tax policy stable during a periods of economic stability. State lawmakers are generally non-interventionists in good times because the idea is not to break something that works. Opponents of cyclical fiscal policy are proponents of countercyclical fiscal policy. State legislatures who adopt cyclical fiscal policies believe that neither taxes or services should be touched regardless of changes in revenue. No economy is completely immutable, therefore, cyclical fiscal policies are adopted under specific conditions. During periods of economic boom, Democrats believe that taxes should be cyclical. Republicans, on the other hand, believe that fiscal policy should be countercyclical during an economic boom because they wish for more economic growth.

Cyclical fiscal policy, however, is a function of political conservatism during a recession period because they assume that the market would correct itself automatically. Liberal lawmakers, on the other hand, agree that countercyclical fiscal policy measures are necessary to prevent the economic engine from stalling. Because cyclical taxes are the preferred strategy of fiscal policy during a recession period, the government is more likely to cut services to preserve the solvency of the government. The countercyclical and Democratic approach to management of an economic recession lends to increased tax rates across the board. Politically, neither of these methods are popular and add to the complexities of tax code. This is mainly why, income tax codes contain so many bizarre and counter-intuitive loopholes manifested in tax deductions and tax credits on income and purposes.

The system of taxation that is adopted in states with credits and deductions is thought to be a hybrid between services and taxes to create market incentives and stimulation. Staunch supporters of cyclical fiscal policy disagree with any type of deduction of credit because they believe its a form of social engineering. Proponents of cyclical fiscal policy believe that government intervention in the economy is only necessary when the viability of the market as a whole is compromised or in clear and present danger of being compromised. Cyclical fiscal policy is the preferred means of raising taxes among classical capitalists and libertarians. Democrats and Republicans believe in cyclical taxes under specific conditions. The primary motivation of all lawmakers, however, is to ensure the greater good. Cyclical fiscal policy is only necessary during times in which it is considered of national interest. Some, however, simply believe that it is in the best interest of a nation maintain fiscal policy constant instead of reactionary.

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