<p>It is very difficult to say what the state of the economy is at at a given point in time so it is difficult to create conditions that would serve as an on/off switch for a certain tax.</p>
<p>There are what are called &quot;automatic stabilisers&quot;, however, which act in a way similar to what you described.</p>
<p>The marginal income tax is actually an example of an automatic stabiliser. If the economy is doing well as measured by an increase in nominal wages, the proportion of an individuals income that goes to paying off tax will be increased, which slows down economic growth.</p>
<p>On the other side of this, there are welfare payments which function as automatic stabilisers when the economy is not doing so well. People with low income tend to spend a greater proportion of their income than those who have a higher income, so when the economy is doing poorly and unemployment rises, more people get welfare and they spend a large amount of their welfare payments, stimulating the economy.</p>
<p>Depending on who you ask, it may be a bad idea to tax specific sectors as that will distort the market.</p>
<p>Further, it might prove dangerous to spring taxes on people and businesses if the economy is &quot;too good&quot;, this could disrupt planning by businesses as their plans may be dependent on a given rate of tax.</p>

CC BY-SA 4.0
2023-10-11T12:17:02.607Z
The Marginal Income tax and the welfare payments maybe automatic stabilisers, but I don't think this is enough. They don't help our governments to reduce the debt, but they still need to pour money in times of crisis, be they financial or environmental.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-11T15:08:36.170Z
You wrote:"It is very difficult to say what the state of the economy is at at a given point in time" I don't agree with this as we have monthly reports on inflation, on spending and on employment.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-11T22:28:58.880Z
Why is it "not enough". You assume all the government's resources are efficiently allocated already. Consider contradictory gov. expenditures such as fossil fuel subsidies and agencies to reduce emissions.  One gov. spend offsets another. There are countless more examples of gov. wasting money. Gov could gradually pay off the debt if they stopped wasting money.

2nd in my opinion, the gov should drastically reduce taxes. You wouldnt advocate increasing tax in a recession. Taxes stifle growth when not in recession anyways and both in easy and hard times they should be reduced.
LlamaBricks
CC BY-SA 4.0
2023-10-11T23:47:35.920Z
There is a problem with your assessment. We need to differentiate between the legislative process and societies needs, thus the needs of citizens. If you want to solve the problems you mentioned, we need to get the money out of the electoral process and get rid of political parties as they often undo what the previous political party in power as done.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T00:07:50.117Z
You wrote: " You wouldn't advocate increasing tax in a recession". Of course not. But if people are accustomed to pay 2% sale tax and they are reduced to 1% or 0 %, they would have more money to spend, and they would feel that the system is responding well to their needs. Furthermore, since the revenues from this tax would have been put in a fund, governments could use this money to stimulate the economy. Since we would already have this money, it would not negatively affect the budget.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-11T05:46:44.980Z
2023-10-11T05:46:44.980Z
LlamaBricks
<blockquote>
<p>Could we create a tax that automatically toggles on or off depending on the state of the economy taking into consideration that the revenues would be saved for further use, either to stimulate the economy when it’s bad, or if it becomes too big, use some of the money to reduce the debt?</p>
</blockquote>
<p>It is trivially true that such tax can be created by government. Government only needs to specify thresholds for values of GDP or unemployment or other parameters at which tax triggers or turns off.</p>
<p>The only problem here is that most macroeconomic data are reported with a quarter or half year lag.</p>
<blockquote>
<p>Would it work?</p>
</blockquote>
<p>Depends, how you define &quot;work&quot;. Such tax would almost certainly create large distortions. You do not specify what type of tax we are talking about. For example some random dividend income tax triggers during expansion, corporations would just postpone paying dividends until recession. If we talk about VAT people would likewise postpone some purchases.</p>
<p>This kind of behavior is both creating deadweight loss to the economy and eroding the tax base for such tax. Hence such tax will create relatively large distortions whereas rising little revenue.</p>
<p>Lastly lets circle back to the point:</p>
<blockquote>
<p>revenues would be saved for further use, either to stimulate the economy when it’s bad, or if it becomes too big, use some of the money to reduce the debt</p>
</blockquote>
<p>Nothing prevents government from using revenues from regular taxes in this way. You don't need to invent new esoteric modes of taxation. Government can consolidate taxes just by rising regular taxes or curbing spending. If government does not have enough political will to do it with regular taxes then this won't help.</p>

CC BY-SA 4.0
2023-10-12T12:45:29.803Z
You wrote: "macroeconomic data are reported with a quarter or half year lag" We do receive monthly. The Federal Reserve meet each month. As for the type of tax, it would be a sales tax.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T12:50:13.573Z
You wrote: This kind of behavior is both creating deadweight loss to the economy and eroding the tax base for such tax. And you think that the increase in mortgage payment for a home owner, increase in interest payment on the debt and the increase in the debt of government does not create deadweight loss?
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T12:55:09.310Z
You wrote: "Nothing prevents government from using revenues from regular taxes in this way. That would be true only if the revenues are higher than the spending. Otherwise it increases the debt.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T13:06:22.617Z
@DenisPageau-Sociétalogue 1. sure they meet each month but they do not have crystal ball. If we do not have data on unemployment then you cannot condition the tax on unemployment. If you want to just condition the tax on their subjective feeling that would violate the principle of central bank independence, and central bankers are not really known for good track record of predicting economy's performance (but then nobody really has a good track record on that).
1muflon1
CC BY-SA 4.0
2023-10-12T13:08:00.350Z
2. "And you think that the increase in mortgage payment for a home owner, increase in interest payment on the debt and the increase in the debt of government does not create deadweight loss" <- nope why would that create deadweight loss? This doesn't drive wedge between marginal private benefit and marginal private costs, taxes do. Not to say that it might not have negative effect on people affected by this interest rate increase, but taxes have negative effect on the people who pay taxes + deadweight loss on top of it (save for special cases)
1muflon1
CC BY-SA 4.0
2023-10-12T13:12:14.147Z
3. Government can always choose to increase taxes such that Tax revenue > Government spending. Instead of inventing some new inefficient tax, government can just raise efficient taxes such as already preexisting income tax or VAT. If government cannot pass tax increase on regular VAT what makes you think the same government can magically pass new time depended tax? In fact that time dependent sales tax would cost taxpayers more due to higher deadweight loss compared to uniform sales tax, so only way you can get it passed is if you somehow deceive voters. You can do that if you care about your
1muflon1
CC BY-SA 4.0
2023-10-12T13:13:13.933Z
proposal being implemented just for the sake of it being implemented, but if you care about optimal public policy that achieves stated government objectives with minimum distortions to the economy it does not make sense.
1muflon1
CC BY-SA 4.0
2023-10-12T13:29:55.627Z
Thanks for your answers. I will come back to them later, but I have a general question that is mostly associated with your last statement as it pertains to minimum distorsions and to the role of the economy in general. "Is the objective of economic tools to maximize the development and functioning of a country or to maximize the functioning and performance of the market?"
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T15:44:12.713Z
@DenisPageau-Sociétalogue what do you mean by economic tools? Economics is science. The main objective of economics and tools economists use is to learn new knowledge about how economy operates or more generally economics is the science that studies relationship between scarce resources and human goals and we wanna get more knowledge about that. When it comes to economic policy there is no stated policy objective. A gov might want to pursue Rawlsian Max-Min principle, utilitarian principle etc whatever. However, no matter what principle you wanna follow there will be 1 or few most efficient
1muflon1
CC BY-SA 4.0
2023-10-12T15:48:20.153Z
Ways of achieving the objective. You stated your objective is to reduce public debt. There are inefficient ways of reducing public debt (for example just randomly defaulting on few bonds every month) or creating some taxes that have very high costs for society and lot of  negative effects eg suppose you would introduce tax on education, or you would try to save money by closing all schools and universities, and then there are efficient ways of doing that. Subject matter of public economics is for any goal that people or government has find a most efficient way(s) of pursuing the goal
1muflon1
CC BY-SA 4.0
2023-10-12T17:26:00.070Z
Just to clarify something, a science is a tool. It is a process by which we gain scientific knowledge.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T20:44:32.893Z
@DenisPageau-Sociétalogue that is not how science is generally understood. Science is an endeavor. Scientific tools are things like scientific method or statistical analysis.
1muflon1
CC BY-SA 4.0
2023-10-12T21:27:55.227Z
For a manager science is a tool he uses to try to identify and implement best practices.  I study societies as organizations and I am trying to identify how to use the two major tools our ancestors created to solve the various social conflicts that arise as we try to meet our individual, social and collective needs. These tools are laws and money. It is impossible to know when the first laws were created but  we know that the first written one were created about 4000 ya. As for money, we first invented tokens about 10 or 12 kya, thus 5k to 7k years before money per se.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T21:32:49.510Z
Hence for me the process by which we create, acquire, use and accumulate money must have a positive impact on societies, thus reduce the level of social conflicts. Money must be a motivator because we do not want freeloaders, but the way it is accumulated must not impede the development of citizens either.
Denis Pageau-Sociétalogue
CC BY-SA 4.0
2023-10-12T11:15:16.197Z
2023-10-12T11:15:16.197Z
1muflon1
<p>Could we create a tax that automatically toggles on or off depending on the state of the economy taking into consideration that the revenues would be saved for further use, either to stimulate the economy when it’s bad, or if it becomes too big, use some of the money to reduce the debt?</p>
<p>This tax could be used instead of raising interest rates or at the same time. Furthermore it could be used to target a certain sector.</p>

CC BY-SA 4.0
2023-10-11T13:58:34.227Z
Just as a clarification point as LlamaBricks's answer is good, tax revenue can't be "saved for further use".  Currency is a tax credit which when returned to the governement is deleted.
Jamie Smith
<macroeconomics><inflation><taxation><debt>
Would it work? A tax that automatically toggles on-off
Denis Pageau-Sociétalogue
# Would it work? A tax that automatically toggles on-off

(Asked by: username_0 on 2023-10-11)

Could we create a tax that automatically toggles on or off depending on the state of the economy taking into consideration that the revenues would be saved for further use, either to stimulate the economy when it’s bad, or if it becomes too big, use some of the money to reduce the debt?

This tax could be used instead of raising interest rates or at the same time. Furthermore it could be used to target a certain sector.

**Tags:** macroeconomics, inflation, taxation, debt

> **Comments:**
> **username_1**: Just as a clarification point as username_2's answer is good, tax revenue can't be "saved for further use".  Currency is a tax credit which when returned to the governement is deleted.  

---

## 2 answers

### Answer by username_2 on 2023-10-11. Score: 2

It is very difficult to say what the state of the economy is at at a given point in time so it is difficult to create conditions that would serve as an on/off switch for a certain tax.

There are what are called "automatic stabilisers", however, which act in a way similar to what you described.

The marginal income tax is actually an example of an automatic stabiliser. If the economy is doing well as measured by an increase in nominal wages, the proportion of an individuals income that goes to paying off tax will be increased, which slows down economic growth.

On the other side of this, there are welfare payments which function as automatic stabilisers when the economy is not doing so well. People with low income tend to spend a greater proportion of their income than those who have a higher income, so when the economy is doing poorly and unemployment rises, more people get welfare and they spend a large amount of their welfare payments, stimulating the economy.

Depending on who you ask, it may be a bad idea to tax specific sectors as that will distort the market.

Further, it might prove dangerous to spring taxes on people and businesses if the economy is "too good", this could disrupt planning by businesses as their plans may be dependent on a given rate of tax.

> **Comments:**
> **username_0**: The Marginal Income tax and the welfare payments maybe automatic stabilisers, but I don't think this is enough. They don't help our governments to reduce the debt, but they still need to pour money in times of crisis, be they financial or environmental.  
> **username_0**: You wrote:"It is very difficult to say what the state of the economy is at at a given point in time" I don't agree with this as we have monthly reports on inflation, on spending and on employment.  
> **username_2**: Why is it "not enough". You assume all the government's resources are efficiently allocated already. Consider contradictory gov. expenditures such as fossil fuel subsidies and agencies to reduce emissions.  One gov. spend offsets another. There are countless more examples of gov. wasting money. Gov could gradually pay off the debt if they stopped wasting money.  2nd in my opinion, the gov should drastically reduce taxes. You wouldnt advocate increasing tax in a recession. Taxes stifle growth when not in recession anyways and both in easy and hard times they should be reduced.  
> **username_0**: There is a problem with your assessment. We need to differentiate between the legislative process and societies needs, thus the needs of citizens. If you want to solve the problems you mentioned, we need to get the money out of the electoral process and get rid of political parties as they often undo what the previous political party in power as done.  
> **username_0**: You wrote: " You wouldn't advocate increasing tax in a recession". Of course not. But if people are accustomed to pay 2% sale tax and they are reduced to 1% or 0 %, they would have more money to spend, and they would feel that the system is responding well to their needs. Furthermore, since the revenues from this tax would have been put in a fund, governments could use this money to stimulate the economy. Since we would already have this money, it would not negatively affect the budget.  

---

### Answer by username_3 on 2023-10-12. Score: 1

> Could we create a tax that automatically toggles on or off depending on the state of the economy taking into consideration that the revenues would be saved for further use, either to stimulate the economy when it’s bad, or if it becomes too big, use some of the money to reduce the debt?

It is trivially true that such tax can be created by government. Government only needs to specify thresholds for values of GDP or unemployment or other parameters at which tax triggers or turns off.

The only problem here is that most macroeconomic data are reported with a quarter or half year lag.

> Would it work?

Depends, how you define "work". Such tax would almost certainly create large distortions. You do not specify what type of tax we are talking about. For example some random dividend income tax triggers during expansion, corporations would just postpone paying dividends until recession. If we talk about VAT people would likewise postpone some purchases.

This kind of behavior is both creating deadweight loss to the economy and eroding the tax base for such tax. Hence such tax will create relatively large distortions whereas rising little revenue.

Lastly lets circle back to the point:

> revenues would be saved for further use, either to stimulate the economy when it’s bad, or if it becomes too big, use some of the money to reduce the debt

Nothing prevents government from using revenues from regular taxes in this way. You don't need to invent new esoteric modes of taxation. Government can consolidate taxes just by rising regular taxes or curbing spending. If government does not have enough political will to do it with regular taxes then this won't help.

> **Comments:**
> **username_0**: You wrote: "macroeconomic data are reported with a quarter or half year lag" We do receive monthly. The Federal Reserve meet each month. As for the type of tax, it would be a sales tax.  
> **username_0**: You wrote: This kind of behavior is both creating deadweight loss to the economy and eroding the tax base for such tax. And you think that the increase in mortgage payment for a home owner, increase in interest payment on the debt and the increase in the debt of government does not create deadweight loss?  
> **username_0**: You wrote: "Nothing prevents government from using revenues from regular taxes in this way. That would be true only if the revenues are higher than the spending. Otherwise it increases the debt.  
> **username_3**: @username_0 1. sure they meet each month but they do not have crystal ball. If we do not have data on unemployment then you cannot condition the tax on unemployment. If you want to just condition the tax on their subjective feeling that would violate the principle of central bank independence, and central bankers are not really known for good track record of predicting economy's performance (but then nobody really has a good track record on that).  
> **username_3**: 2. "And you think that the increase in mortgage payment for a home owner, increase in interest payment on the debt and the increase in the debt of government does not create deadweight loss" <- nope why would that create deadweight loss? This doesn't drive wedge between marginal private benefit and marginal private costs, taxes do. Not to say that it might not have negative effect on people affected by this interest rate increase, but taxes have negative effect on the people who pay taxes + deadweight loss on top of it (save for special cases)  
> **username_3**: 3. Government can always choose to increase taxes such that Tax revenue > Government spending. Instead of inventing some new inefficient tax, government can just raise efficient taxes such as already preexisting income tax or VAT. If government cannot pass tax increase on regular VAT what makes you think the same government can magically pass new time depended tax? In fact that time dependent sales tax would cost taxpayers more due to higher deadweight loss compared to uniform sales tax, so only way you can get it passed is if you somehow deceive voters. You can do that if you care about your  
> **username_3**: proposal being implemented just for the sake of it being implemented, but if you care about optimal public policy that achieves stated government objectives with minimum distortions to the economy it does not make sense.  
> **username_0**: Thanks for your answers. I will come back to them later, but I have a general question that is mostly associated with your last statement as it pertains to minimum distorsions and to the role of the economy in general. "Is the objective of economic tools to maximize the development and functioning of a country or to maximize the functioning and performance of the market?"  
> **username_3**: @username_0 what do you mean by economic tools? Economics is science. The main objective of economics and tools economists use is to learn new knowledge about how economy operates or more generally economics is the science that studies relationship between scarce resources and human goals and we wanna get more knowledge about that. When it comes to economic policy there is no stated policy objective. A gov might want to pursue Rawlsian Max-Min principle, utilitarian principle etc whatever. However, no matter what principle you wanna follow there will be 1 or few most efficient  
> **username_3**: Ways of achieving the objective. You stated your objective is to reduce public debt. There are inefficient ways of reducing public debt (for example just randomly defaulting on few bonds every month) or creating some taxes that have very high costs for society and lot of  negative effects eg suppose you would introduce tax on education, or you would try to save money by closing all schools and universities, and then there are efficient ways of doing that. Subject matter of public economics is for any goal that people or government has find a most efficient way(s) of pursuing the goal  
> **username_0**: Just to clarify something, a science is a tool. It is a process by which we gain scientific knowledge.  
> **username_3**: @username_0 that is not how science is generally understood. Science is an endeavor. Scientific tools are things like scientific method or statistical analysis.  
> **username_0**: For a manager science is a tool he uses to try to identify and implement best practices.  I study societies as organizations and I am trying to identify how to use the two major tools our ancestors created to solve the various social conflicts that arise as we try to meet our individual, social and collective needs. These tools are laws and money. It is impossible to know when the first laws were created but  we know that the first written one were created about 4000 ya. As for money, we first invented tokens about 10 or 12 kya, thus 5k to 7k years before money per se.  
> **username_0**: Hence for me the process by which we create, acquire, use and accumulate money must have a positive impact on societies, thus reduce the level of social conflicts. Money must be a motivator because we do not want freeloaders, but the way it is accumulated must not impede the development of citizens either.  

---

