Why do some economists advocate taxing consumption rather than income?

Answer 1

It is a horrible, extreme right-wing idea. This would only increase the tax burden on the poor while reducing the burden of the upper-class.
I say we eliminate the loopholes for the wealthy so that they actually pay a higher tax percentage instead of just pretending to pay more.
Here in New York, we have a consumption tax AND Income tax AND property tax (all of which are very high), and the burden on the middle-class is unsustainable.

Answer 2

There are lots of reasons for using a consumption tax rather than an income tax. And no legitimate reason for not doing so. First taxing consumption makes the tax voluntary. The next reason is that incomes go up and down with the economy but the consumption generally does not.

Another reason is that exports are not taxed but imports are taxed at the point of sale. Therefore it would increase exports and decrease imports.

The only reason to tax income is to punish achievement, and to use the tax code as an instrument of social engineering. If the purpose of taxes is to fund the legitimate functions of government rather than to perform social experiments then a consumption tax generates the same revenue for the government without all the social meddling. Also in taxing income the politicians can then trade favors, loop holes in the tax code, for political contributions.

Answer 3

Taxing income is a means of taxing work. This reduces incentives for people to work and can even lead to what are known as 'poverty traps' when people in low incomes face high effective tax rates (for example, if they lose welfare payments when they get a job, even though it is everyone's interests that they get a job).

Most economists consider that the primary purpose of consumption taxes should be to raise the revenue governments need to operate and provide the services that their population demands. However, as one of teh earlier answerers notes, they can be regressive since the rich are more likely to save. Therefore, you still need an income tax to address equity issues, but because most of the governments revenue would be collected through consumption taxes, the rates of income tax don't need to be high and thus you don't get as strong a disincentive for people to work. The more people work, the more an econopmy produces and the more there is to go around and lift everyone's standard of living.

Answer 4

Because billions are spent each and every year by people trying to decrease their tax liability. If you tax comsuption aka The Fair Tax, you are much more fairly inclusive of taxation. Example: Your average corner prostitue or drug dealer (insert any under the radar occupation here) does not file a return and therefore does not pay ANY income tax. Under a comsumption tax whatever they purchased would be taxed. The Fair Tax bill has a built in PREbate that would equal the amount of tax a family of 4 would pay on the neccesities (food, gas, etc...). Therefore the "poor" would not be paying tax other than on discretional spending (cell phones, flat screen tv's, etc...) and the wealthy would not be sheltering their income they would be saving and spending.


Sounds like what Understood belows believes is that it is a good idea to punish those that work hard and make the right decisions.

Answer 5

Taxing consumption is more equal and encourages people to work harder. Why should a welfare recipient work if after they pay taxes on their labor, they make less than when they are on welfare?

There is also a growing opinion that the act of taxing a person's labor is not Constitutionally legal. Various courts have decided that a person's labor is that person's property that is exchanged equally. The Constitution allowed for taxation on profits only. The 13th Amendment tried to change this but it was not ratified.

http://video.google.com/videoplay?docid=-4312730277175242198&q=

Answer 6

promotes saving