Consumption taxes: A view of future tax reform in America.

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Abstract

Consumption taxes are more effective than income taxes in encouraging national savings. This is because the former are levied when income is spent while the latter impose taxes on savings when earned. Critics of the consumption tax charge that it is regressive and will unfairly burden low-income Americans. Since the poor tend to spend all of their earnings, their entire income will therefore be subject to the tax. Higher income individuals, on the other hand, will only pay taxes for that portion of their income that they spend. Income that are saved or invested will not be affected. This valid argument against consumption taxes can be countered by the implementation of a progressive consumption tax approach rather than by a flat rate system. Under this approach, progressive rates will be imposed and a standard deduction may even be allowed so that tax obligations will be proportionate to the taxpayers' ability to pay.

Original languageAmerican English
JournalDefault journal
StatePublished - Jan 1 1994

Keywords

  • Consumption tax
  • Value added tax

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