Would an Income Tax Holiday Help the Economy?
All sorts of ideas are floating around as our leaders try to get a handle on the economy. Indeed, there are a number of ideas out there, all of them designed to help stimulate the economy. Sometimes it seems as though our leaders are just tossing things up against a wall to see what will stick — more specifically what the market seems to think will fix the economy.
One of the ideas has been to force mortgage interest rates lower, to 4.5%. This idea is meant to spur refinancing and also new home buying. It won’t really stop a lot of foreclosures, but it might stimulate other economic activity. Loan modification is also being proposed.
And, of course, another economic stimulus package is being sought. This next package is expected to be about $1 trillion. Of course, it has be talked up. The American public is a little wary of more bailouts and stimulus packages, so we’ll have to be talked into the idea of such a large sum. Perhaps if enough is included for the middle class, such a bailout will be accepted. But what is really interesting right now is the income tax holiday being proposed in some circles.
Income tax holiday
An income tax holiday would be different from an economic stimulus package. The government was disappointed that the eariler stimulus package this year didn’t result in more spending. So they’re hoping that an income tax holiday would encourage spending. But, really, it’s probably more of a political ploy. BloggingStocks reports on what economist Richard Felson says about an income tax holiday:
“I’m sure taxpayers, particularly those in upper income groups, would love a suspension of tax collection for three or four months,” Felson said. “But there’s a danger that middle income taxpayers would save a great deal of their dollars, and like the earlier tax rebate, it ends up stimulating the economy very little. Who knows? Maybe in this environment rich Americans would end up saving a lot of it too, so I don’t see it as a prudent stimulus option.”
In the end, I’m not sure that there really is a way to force the economy to play nice. Instead, we may just have to ride this one out.
