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.
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