Consumption Taxes

Consumption tax, also known as an expenditures tax, a consumed-income tax, or a cash flow tax, is a tax on the monies spent as opposed to an income tax, which is a tax on the amount of money earned. Consumption tax applies only to income spent and can be broadly explained as an income tax with unlimited deductions for savings and taxes on savings withdrawn and spent. If there is no savings or capital income, a consumption tax is equal to an income tax, assuming equivalent tax rates. Although it can be applied to firms, the [Page 657]consumption tax is usually discussed in terms of taxation for individuals. The rate of taxation can be flat (i.e., equal for everyone regardless of income) or progressive (i.e., ...