consumption tax

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Consumption tax

Consumption Tax

A tax only on income that one spends on goods and services. A common example of a consumption tax is a sales tax. Most countries have consumption taxes at some level and proposals exist in the United States to shift from a mainly progressive tax system to a system that utilizes consumption taxes predominantly or exclusively. Proponents of a consumption 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.

consumption tax

A tax levied on individual commodities or services and included as part of the retail price of those commodities or services paid by consumers. For example, a 25¢ tax levied on a pack of cigarettes is a consumption tax. Consumption taxes are advocated by many people as an inducement to increase savings in the economy. These people argue that the present taxation of income penalizes savers and rewards spenders. Compare excise tax, value-added tax.
References in periodicals archive ?
same nominal rate on the entire tax base (and, like a consumption tax,
Simple in concept, a consumption tax is a method of obtaining revenue without taxing savings twice.
2393, the Secretary of the Treasury would clarify how the consumption tax would be used to identify and grab hold of ambiguous revenue which would help in reducing the deficit.
The hearing considered separately these two different consumption tax models.
China hiked consumption tax on fuel at the beginning of 2009 as part of a wider reform of fuel pricing, which included a pledge to let fuel prices stick closer to crude oil prices than they had in the past -- at least while crude oil was cheap.
Regarding the timing of the proposed consumption tax increase, Kan said, "I
favor of a consumption tax on the one hand, and income averaging on the
While consumption taxes are inherently less fair than a progressive tax on income, there are ways to moderate its unfairness, and if a consumption tax were directly linked to a positive social good--such as a VAT that pays for universal health care--the entire package, taken together, would be enormously progressive.
1) Even if there were agreement that a consumption tax was superior to an income tax, however, there would still be significant obstacles to accomplishing the shift.
Furthermore, if all investments were expensed and deducted from income, then the tax system would become a consumption tax because consumption equals income minus investment.
As you know, many economists believe that a consumption tax would be best from the perspective of promoting economic growth--particularly if one were designing a tax system from scratch--because a consumption tax is likely to encourage saving and capital formation.
Explain the difference between an income tax and a consumption tax.