Final answer:
True The assertion that without net operating loss rules, taxpayers with stable income levels would be punished relative to taxpayers with significant income fluctuations is True. NOL rules help to balance tax liabilities over time, especially for those with variable incomes, serving as automatic stabilizers for the economy.
Step-by-step explanation:
The question pertains to the impact of net operating loss (NOL) rules on taxpayers with different income fluctuation patterns. The assertion that without the NOL rules, taxpayers with stable income levels would be punished relative to taxpayers with significant income fluctuations is True.
The rationale behind this is that NOL rules allow taxpayers who incur a loss in one year to offset this loss against profits in other years.
This smoothens out tax liabilities over time, which is particularly beneficial for those with variable incomes. In contrast, taxpayers with stable incomes, who do not benefit from NOL rules to the same extent, could end up paying a disproportionately higher amount of taxes over time.
For example, during recessions, businesses may incur losses, which can be carried forward to offset income during recovery years, leading to smaller budget deficits or even surpluses. Conversely, during booms, profits rise, and the resulting tax payments can lead to smaller deficits or larger surpluses.
Economist Arthur Laffer suggested that sometimes lowering tax rates can increase income tax revenue. This can happen if the lower tax rates incentivize more economic activity, leading to higher total taxable income and thus, potentially, a higher total tax revenue.