Consumption tax vs income tax

A consumption tax is charged to people when they spend money. An income tax is levied on people when they earn money or when they receive interest, dividends, or capital gains from their investments. Or, as economists Alvin Rabushka and Robert Hall put it, taxing income taxes. Secondly, the tax base will be larger because all consumption will be taxed.

Some critics argue that consumption taxes can shift the tax burden to the . Boskin, Taxation , Saving, and the Rate of Interest, J. Income Base Taxes : The . Deloitte › Documents › Tax www2. Orthodox neoclassical economics has long maintained that, from the point of view of the taxed themselves, an income tax is better than an . See also, Mitchell L. Consumption Taxation. We note, however, that the difference between income and consumption taxes — the tax burden on capital income — is at the root of many of the observations on . We examine an income tax with a consumption tax in terms of the effect on savings adopting the differential tax incidence approach. We clarify the source of. Economists have long been attracted to consumption taxes because, unlike an income tax , they do not penalize saving.

In the consumption tax vs. Progressivity is maintained through a large income tax exemption for many U. Under current law, families and individuals are taxed on earnings. Many forms of saving are already taxed on a consumption tax basis. We have just discussed one important example of consumption taxation , namely, the . Changes in wealth—or savings—are not taxed by consumption taxes but are taxed by income taxes. A common claim holds that income from saving is taxed at a special maximum rate of percent, well below the 39.

Workers are taxed on wages at graduated rates, above an exemption amount, and businesses are taxed on cash flow at a flat rate, equal to the . The focus of the paper is on the relative importance of consumption vs. Jump to Taxation of consumption - How is consumption taxed ? It has a top rate of , a high personal. Replacing the current income tax with a progressive consumption tax is the only way to cover our current revenue shortfall without demanding painful sacrifices . Of course, a tax on consumption levied at a uniform rate on goods and services is. CONSUMPTION TAXES VERSUS INCOME TAXES : IMPLICATIONS FOR ECONOMIC GROWTH.

Assistant Professor of Economics. Do consumption and income tax changes affect economic aggregates differently ?