The recession has led to belt-tightening all around, including tax increases and spending cuts to balance state and local budgets.

Further, the City of New York, under the leadership of Mayor Michael Bloomberg, has done a pretty good job closing its budget deficit, while maintaining essential public services.

It goes without saying that the current U.S. recession is a serious economic condition that requires extraordinary actions.

The Fed, via its new "tool box," the Treasury via tactical investments under the TARP, and the prospective, largest fiscal stimulus package in U.S. history all represent extraordinary measures.

But should the United States consider still another, extraordinary action? Namely, temporarily suspending the federal income tax?

Attacking the recession from both "sides"

Experienced investors know that one great divide in economics concerns those economists who emphasize supply side (top-down) factors and those who emphasize demand side (bottom-up) factors. Passing a federal income tax holiday would add supply-side stimulus to likely demand-side stimulus via a fiscal stimulus package in 2009.

However, economist Richard Felson told BloggingStocks Tuesday while a federal income tax holiday would be politically-attractive, particularly for U.S. Representatives and Senators up for re-election in 2010, he doesn't favor the approach.

With unemployment rising and the signs of slowdown all around, is a second tax rebate or second stimulus check from Congress up ahead?

The U.S. economy continues to slow. More than 800,000 jobs have been lost since the slowdown began about a year ago, and many economists say the lay-offs are likely to continue or even increase.

Meanwhile, the world's major industrialized nations are striving to stabilize the global financial system and end a credit crunch that could further damage economies around the world.

Well, the answer to the question about a second stimulus check may very well rest on the answer to this one: Who are you voting for on Election Day, November 4?

Key factor: 2008 Election

Congressional Democrats, led by House Speaker Nancy Pelosi, D-California, have vowed to push for a second stimulus package totaling up to $150 billion to help jump-start the anemic U.S. economy, The San Francisco Chronicle reports.

In a tough economy, the income tax burden on individuals becomes more of a weight. Add the payments to higher gas prices, mortgages that are being reset at lofty levels and rising food costs and the results can be awful.

But at least corporations are paying income taxes to carry part of the burden of running the federal government, right? Too bad that it turns out that this assumption is wrong. As The New York Times writes, "Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released Tuesday by the Government Accountability Office, the investigative arm of Congress"

How sweet a deal is that?

Part of the trick is that many companies move money to countries outside the U.S. where the tax burden is lower.

In a period where the federal deficit is at nose bleed levels and individual tax payers are being crushed, Congress will probably be upset enough to pass bills to correct the inequity.

How the companies got away with it for so long is a question that is pretty disturbing.

Douglas A. McIntyre is an editor at 247wallst.com.

This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.

If you fail to file your tax return because you owe more than you can pay, you are digging a deep hole for yourself. It will not be easy to climb out of it.

The IRS treats failure to file a tax return as a far more serious offense than filing a tax return and not paying the full amount of the taxes due.

If you fail to file a tax return, the IRS has the right to prepare and file one for you. The return prepared by the IRS may not give you credit for deductions and exemptions to which you may be entitled. Once the return is prepared, the IRS can bill you for the amount it calculates is due, plus penalties and interest.

While it is not the current policy of the IRS to criminally prosecute taxpayers who fail to file returns, it can happen. If you do not file voluntarily, or make arrangements to file, and you receive a notice from the IRS that you are under criminal investigation, you might run out of options and find yourself facing a criminal trial.

A far better option is to file your returns on time (or seek an extension) and discuss with the IRS the options it has available for making payments over time.

You may qualify for paying your taxes in installments, particularly if the amount owed is less than $25,000 including combined tax, payment and interest.

You also may qualify for an "offer of compromise," which will resolve your tax liability for an amount less than you might otherwise owe. There are a number of stringent requirements imposed by the IRS in order to qualify for an offer of compromise. However, the IRS has broad discretion to resolve tax liabilities if the taxpayer can demonstrate that "... exceptional circumstances exist such that collection of the full amount would create economic hardship...."

You should consult with a tax advisor to be fully informed of your rights in dealing with overdue taxes. But remember, the problem will not just go away. Failing to file your tax returns will only make it worse.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

The Internal Revenue Service is reporting that it still has about 5.2 million tax rebate checks which it cannot send out because the people who should get them have not filed a 2007 tax return. According to a report in USA Today, these citizens only need to fill in a few lines on IRS form 1040A, in order to get their money. The IRS says that veterans and retirees, those who could use the money the most, make up the major portion of the population that has not yet received it's rebates. The IRS expects to issue 124 million rebate payments by year's end. So far, about 76.5 million of those payments have gone out.

The United States is an enormous, diverse nation, and there's perhaps no better evidence of that than the U.S.'s current economic cycle.

The finances of many states have deteriorated to such a degree that they appear to be in recession, even though the nation as a whole may not be, a survey of 50 state fiscal directors concluded.

The states: budget deficits abound

The National Conference of State Legislatures' survey says that "arguing whether the national economy is in recession is almost beside the point" because the fiscal condition of some states has declined so much that they appear to be in a recession.

In all, 23 states, including hard-hit housing slump states Florida, California, and Nevada, expect to report budget deficits in the next fiscal year, fiscal 2009, with the aggregate revenue shortfall reaching $26 billion. Further, more than two-thirds of the states said they are concerned or pessimistic regarding their F2009 revenue outlook.

Historically, most states experience a decline in revenue as the U.S. economy contracts, as the economic slowdown results in lower retail sales, which lowers sales tax revenue -- a major source of revenue for many states. Job layoffs also decrease state income tax revenue. Further, state social service costs typically increase, as unemployment claims increase and applications for income/food/energy assistance rise.

Florida, California hard hit

Economist Peter Dawson told BloggingStocks Friday the NCSL data is in-line with the profile of this cycle's economic slowdown. "From the research we can see that the states under most stress are those that rank very high regarding mortgage default and housing foreclosure lists, with Florida and California being the most obvious examples," Dawson said. "These states are going to be under fiscal stress for a considerable period of time due to the size of their housing correction."

Moreover, Dawson said because of California's and Florida's size, "it will be very hard for the nation to grow at capacity until these states have started to grow." Hence, a return to robust economic conditions nationally, "could be a year to 18 months off, assuming growth resumes nationally by late 2008," he said.

Beltway Banter: The quick, initial read regarding U.S. Representative Charles Rangel's (D-New York) hedge fund/buy-out firm tax bill introduced Thursday is that the measure, as composed, would produce a certain veto from President Bush, but that the Bush Administration may be willing to work on a revised Rangel measure.

A revised bill, provided it successfully snakes its way through the U.S. Senate, may be legislation President Bush can work with, as a way to solve the alternate minimum tax issue. Designed to prevent wealthy Americans from paying no tax via tax shelters, the AMT -- due to inflation -- applies to a larger number of upper-middle-income Americans each year. Without an AMT patch, 21 million households will be obligated to pay the alternate minimum tax.

U.S. Rep. Rangel's measure would more than double the tax rate on carried interest, the executive compensation at buy-out and venture-capital firms, and would require hedge-fund managers to pay tax on income they defer in offshore accounts, among other bill features.

U.S. Rep. Rangel calls his bill "the mother of all tax reforms." Republican leaders disagree. In a statement, they called the bill, "the mother of all tax hikes" and assert that the bill would raise taxes by $1 trillion over a 10-year span, Reuters reported. Rep. Rangel countered by saying that U.S. Treasury Secretary Henry Paulson had recommended the business tax changes.

A New Hampshire couple have taken refuge in their home as an income tax 'protest.' After reading Zac Bissonnette's take, I just couldn't leave this story alone. Here's my response:

Dear Mr. and Mrs. Anarchy,

Pardon me for interrupting your solitude but it appears to me that you may have made a grave error. I'm expecting that you'll be able to read this unless your Internet connection has been severed from the federally protected communication streams. At this time I must ask you if you have ever read the American Constitution. Unless I'm mistaken, Congress empowered the government to collect income tax quite some time ago.

I'm hoping that you have surrendered your vehicles by now. Being that you have no use for federally subsidized roads, I suspect that you plan to walk for the rest of your lives. Please be sure that you take your gas masks along on your walks because the EPA has indicated that it is no longer willing to assure that you have clean air to breathe. When you get home from walking you may wish to consider twice if you'll have a drink of water due to the fact that you have implied that safe water standards no longer apply to you. The government of the United States shall honor your desire to be unprotected in the matters of breathing and hydration.

In advance of your starvation, I'd like to thank you for surrendering all the food you have, with the exception of those things which are not USDA inspected. I apologize that you have little left to eat but the USDA has indicated that it is no longer interested in protecting your digestion. Additionally, every inspector of every product at every port, air terminal and border crossing has made it clear that they will no longer work for you. It is a shame that you shall soon be naked, diseased and starved to death but all federal services rendered in your name have been suspended as you requested.

Please inform us as soon as possible where it is that you shall be moving to. We, as a nation have no desire to force you to remain within our borders. It is possible that some territory remains near the Arctic Circle where you may reside untaxed for the remainder of your lives. We suggest that you go there as soon as possible. Please do be careful as you walk naked, hungry and without personal security. We would hate for some nasty international criminal to make prey of you. Rest assured that there is a large pool of payroll tax paying individuals who will be more than happy to cast lots for your home. Now, please make a hasty exit you deadbeats. We honestly don't want to keep you here.

Best Regards,

Gary E. Sattler