Tuesday, 5 January 2010

Tax that goes up in a recession

Recession's are notoriously bad for government finances: as company profit falls, so does tax on profit; as unemployment rises, so does the cost of social security. But there must be some things that government could tax that increase during a recession. For example, people tend to want to hold more cash during a recession. If interest income was taxed higher than other investment income (e.g. dividend income) then tax take would increase during a recession, giving the government the resource to spend on fiscal recovery.

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