NautiGirl
Well-Known Member
Oh yes. why consumption tax is better than income tax. Google it. http://www.investorguide.com/igu-article-1134-tax-basics-consumption-vs-income-tax.html
A consumption tax (also known as a cash-flow tax, expenditure tax, or consumed income tax) is levied on goods and services that are consumed. While an income tax is based upon income earned from labor or capital, a consumption tax is solely based upon
consumption. This may sound similar to a sales tax, but in its purest form a consumption tax will not become regressive as is the case with a pure sales tax. A consumption tax can be designed to be progressive if it includes the following features:
1.Exemptions
2.Graduated
3.Deductions
4.Rebates
Prior to the passage of the 16th Amendment to the Constitution, the United States primarily raised government revenues using consumption taxes. It took the passage of the 16th Amendment in 1913 to permit Congress to create income taxes because the Founding Fathers believed income taxes could be abused by persons in power.
A true consumption tax is nearly impossible to increase to excessive or punitive levels. These taxes are naturally limited because they will ultimately discourage economic activity when they become too high. Excessive consumption taxes affect the economy in three ways: by discouraging consumer spending, by decreasing business revenues and by lowering the amount of tax that can be collected when economic activity decreases.
Ideally, a consumption tax would only tax goods or services when consumed while leaving savings alone. Income tax, however, does tax savings because revenues are raised not only from labor (wages or salaries), but also from capital (interest, dividends, capital gains). So which system is superior?
Consumption vs. Income
Pure tax economists argue that a consumption tax is superior because it comes closest to attaining “temporal neutrality”. Although impossible to attain in reality, a tax would be considered to have attained temporal neutrality if it did not alter spending habits, change behavior patterns, or affect the natural allocation of resources. Because a consumption tax only taxes consumption, the good or service being consumed is largely irrelevant in reference to the allocation of resources.
An income tax, however, creates a barrier between the value of a person’s labor (how much they earn from working) and what they actually receive (money after taxes). This is a negative force on the economy because it causes people to work less and pursue more leisure activities than would otherwise be the case if income taxes did not exist. In other words, if there were no income taxes people would immediately see a real increase in purchasing power for each additional unit of time they spent working, and thus would be theoretically be more inclined to work. The barrier created by income taxes also produces less savings (because capital is taxed), reduces investment, discourages innovation, and ultimately contributes to a lower standard of living when compared to a pure consumption tax. To think of it another way, income taxes will actually cause greater consumption in the present while reducing future savings and future consumption.
A well designed consumption tax is more neutral and does not affect the allocation of resources as dramatically as an income tax. Taxes are only assessed on any income that is consumed (spent on goods, services, etc.) while not taxing savings. This eliminates any barrier to savings and actually would encourage people to save more, increase available capital, and ultimately produce a more solid, robust
A consumption tax (also known as a cash-flow tax, expenditure tax, or consumed income tax) is levied on goods and services that are consumed. While an income tax is based upon income earned from labor or capital, a consumption tax is solely based upon
consumption. This may sound similar to a sales tax, but in its purest form a consumption tax will not become regressive as is the case with a pure sales tax. A consumption tax can be designed to be progressive if it includes the following features:
1.Exemptions
2.Graduated
3.Deductions
4.Rebates
Prior to the passage of the 16th Amendment to the Constitution, the United States primarily raised government revenues using consumption taxes. It took the passage of the 16th Amendment in 1913 to permit Congress to create income taxes because the Founding Fathers believed income taxes could be abused by persons in power.
A true consumption tax is nearly impossible to increase to excessive or punitive levels. These taxes are naturally limited because they will ultimately discourage economic activity when they become too high. Excessive consumption taxes affect the economy in three ways: by discouraging consumer spending, by decreasing business revenues and by lowering the amount of tax that can be collected when economic activity decreases.
Ideally, a consumption tax would only tax goods or services when consumed while leaving savings alone. Income tax, however, does tax savings because revenues are raised not only from labor (wages or salaries), but also from capital (interest, dividends, capital gains). So which system is superior?
Consumption vs. Income
Pure tax economists argue that a consumption tax is superior because it comes closest to attaining “temporal neutrality”. Although impossible to attain in reality, a tax would be considered to have attained temporal neutrality if it did not alter spending habits, change behavior patterns, or affect the natural allocation of resources. Because a consumption tax only taxes consumption, the good or service being consumed is largely irrelevant in reference to the allocation of resources.
An income tax, however, creates a barrier between the value of a person’s labor (how much they earn from working) and what they actually receive (money after taxes). This is a negative force on the economy because it causes people to work less and pursue more leisure activities than would otherwise be the case if income taxes did not exist. In other words, if there were no income taxes people would immediately see a real increase in purchasing power for each additional unit of time they spent working, and thus would be theoretically be more inclined to work. The barrier created by income taxes also produces less savings (because capital is taxed), reduces investment, discourages innovation, and ultimately contributes to a lower standard of living when compared to a pure consumption tax. To think of it another way, income taxes will actually cause greater consumption in the present while reducing future savings and future consumption.
A well designed consumption tax is more neutral and does not affect the allocation of resources as dramatically as an income tax. Taxes are only assessed on any income that is consumed (spent on goods, services, etc.) while not taxing savings. This eliminates any barrier to savings and actually would encourage people to save more, increase available capital, and ultimately produce a more solid, robust
