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Cyclical Taxes at a Glance

Cyclical Taxes at a GlanceCyclical
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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