Tax


What You Didn’t Know About Countercyclical Taxes

What You Didn’t Know About Countercyclical Taxes

Share
What You Didn't Know About Countercyclical Taxes
Cyclical factors are those that have a cycle associated with them. For example, property taxes are often cyclical and are paid on a quarterly basis. In addition, increases in property taxes are often on a cyclical basis as most states mandate new tax assessments in a certain time frame.  Non-cyclical factors are those that have no cycle. 
For example, sales taxes are not subject to a cycle and are simply imposed when a taxpayer makes a purchase. Countercyclical factors are those that work against those of a cyclical nature. For example, a countercyclical  economic factor is one that works in opposition of the economy. For example, a tax imposed during rough economic times would be one that boosts the economy. Conversely, a tax that hurts the economy during good financial times would also be countercyclical. A countercyclical factor is one that opposes current circumstances.
Progressive taxes are said to countercyclical based on the principles of inflation. For example, an individual that experiences an increase in income, would pay higher taxes based on a percentage of their salary. In contrast, an individual that experiences a decrease in salary and is subject to a regressive tax, would also be experiencing a countercyclical tax. Inflation can have a large impact on those economic principles. 
Inflation itself is countercyclical. Inflation means that taxpayers experience increased prices for everything, including taxes. Those that have an increase in salary due to inflation, currently pay higher income taxes which negate the benefit they experienced in their salary due to inflation. Cost of living salary increases are simply a result of inflation. Those taxpayers that receive the benefit of an increase in salary due to inflation, often experience many rebound effects from that increase. Although the cost of living has obviously increased, so to have taxes and other fees. That increase in taxes may be a direct result of the cost of living benefit included in that taxpayers salary.
Inflation has a large impact on all other economic factors that effect taxpayers. However, the opposite is also true. There are many economic factors that influence inflation. Sometimes it is difficult to ascertain which economic factor was a result and which was a cause. The non-cyclical nature of the economy makes it difficult to predict inflation or an economy that is on the down swing.

Comments

comments

Share

Related Articles


Read previous post:
The Difference Between State And Federal Taxes

Close