Will We Get an Income Tax Holiday?
December 9, 2008 by Miranda Marquit
Filed under Finance
It’s the end of the year, and many of us are starting to think about tax preparation. As soon as the new year hits, it’s tax season (my mom worked for H&R Block, so I know all about this). But what if we didn’t have to pay taxes?
What if we got an income tax holiday?
One of the Representatives in the House, Louie Gohmert (R.-Tex.) is introducing legislation that gives everyone a break from income tax and FICA tax for two months (January and February). This is an interesting piece of legislation. The idea is that we will all go out and spend that money, and that will stimulate the economy.
The government is always using my tax dollars irresponsibly, so I do see the appeal in a plan that allows me to keep more of my money. However, in my opinion, there are some problems with this idea:
- Isn’t Social Security already in trouble? Wouldn’t no FICA for a couple of months make things worse? It’s not as if we’re actually reforming anything here.
- What are “we the people” going to do in March when we have to start paying taxes again? It won’t be pretty. Although this might be a way to transition away from the progressive income tax we have now to something more regressive, like a national sales tax or a VAT.
- The money is coming from the last $350 billion of the last bailout package. Which means its really more like a loan — since the government has to borrow to get that cash. At some point it will have to be paid back with interest. And guess who pays? We do.
- It’s probably not going to stimulate the economy. Remember the stimulus checks? They didn’t really help the economy. Because instead of spending the money and helping the economy, people paid off debt and put the money in savings. I’m thinking that, with the current climate, even more people would be inclined to use the money (wisely) in a way the government doesn’t intend.
Here are some other thoughts on an income tax holiday:
Watch the video of Rep. Gohmert on Fox Business. (No embedding allowed, unfortunately.)
BloggingStocks on why it’s a bad idea.
The Heritage Foundation thinks that we should have permanent tax relief.
What do you think of an income tax holiday?
Hey Miranda,
Interesting…When I read the beginning I was thinking, didn’t they already try this with the stimulus checks? Then I saw your #4. I agree with you, I think it’s a bad idea.
All anyone is focused on right now in government is throwing money at people (in particular, big corporations) instead of making them live within their means.
It’s something I am even getting better at myself because of the state of the economy. So, I wouldn’t want the taxes withheld because that would only provide a false sense of having extra money. Extra money that I don’t have and that I am sure the government would just take from me another way :)
Thanks for the post.
Jennifer
Nail on head: Government will take it another way. And with interest. I agree that throwing money at the problem hasn’t been working. But for some reason they think that if they throw enough money at the problems, they will disappear.
There are several problems with this, like you mentioned. A tax holiday should be more costly than our bailout package. The bailout package was structured in a way that gave more of a bailout to lower income families, and less for higher income families. By giving everyone a tax break for an extended period of time would be economic suicide on the part of the government. It would also be very detrimental to our already terrible debt that our economy is stacking up (a great mention in the post). Thanks for the great post! Scary thoughts that some of our gov. representatives are coming up with, huh…
I agree that this looks likes the checks. Most people just saved (paid of debt). It would take a permanent change to the tax code to get people to change their behavior. Lower the income tax and at the same time close ALL loopholes and ALL deductions for everyone.
Thanks James and David for weighing in. I agree that it would be economic suicide for the government. This from CNN Money really woke me up to the costs SO FAR: http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/.
Also, I really like David’s idea. I’ve been a fan of lower income tax and no deductions for quite some time. I like the idea of a progressive flat tax (flat tax, no deductions, for your tax bracket), with the highest bracket capped at 18% -20% and the lowest paying about 5%. And I’m considering how I feel about VAT as well.
A tax rebate by any other name stinks the same and accomplishes nothing.
I’m not saying the Dems are better, but tax rebates seem to be the only idea Republicans have.
That’s because a tax rebate, where we get to “keep more of our money”, is popular politics. Doesn’t make much fiscal sense, but it helps people feel better about things.
Personally, I would rather see a moratorium on capital gains taxes than one on income tax. You’re right; the increase in take-home pay would likely be saved or put towards debt reduction, particularly in January and February when people tend to spend less coming out of the holiday shopping season.
I suppose a holiday on capital gains could stimulate increased investment — especially if short term capital gains were exempted. But I’m not sure how helpful such a thing would be to most members of the middle class whose investment earnings are mostly in tax-deferred retirement accounts.
You are right, though, that most people are in hoarding mode after the spending spree that is the holiday season.