A tax only on income that one spends on goods and services. A common example of a consumed-income tax is a sales tax. Most countries have consumed-income taxes at some level and proposals exist in the United States to shift from a mainly progressive tax system to a system that utilizes consumed income taxes predominantly or exclusively. Proponents of a consumed-income tax argue that it encourages saving and makes the economy more efficient, while opponents maintain that it adversely affects the poor, who must by necessity spend more of their income.
A tax levied only against the part of income that is spent. Proponents of this type of taxation contend that exempting the portion of income that is saved will encourage savings, provide funds for investment, and make the economy more productive.