Consumption taxes: A view of future tax reform in America.

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James A. Fellows

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Consumption taxes are more effective than income taxes in encouraging national savings. This is because the former are levied when income is spent while the latter impose taxes on savings when earned. Critics of the consumption tax charge that it is regressive and will unfairly burden low-income Americans. Since the poor tend to spend all of their earnings, their entire income will therefore be subject to the tax. Higher income individuals, on the other hand, will only pay taxes for that portion of their income that they spend. Income that are saved or invested will not be affected. This valid argument against consumption taxes can be countered by the implementation of a progressive consumption tax approach rather than by a flat rate system. Under this approach, progressive rates will be imposed and a standard deduction may even be allowed so that tax obligations will be proportionate to the taxpayers' ability to pay.


The article was the recipient of the Annual Max Block award as the outstanding article in the 1994 series of The CPA Journal. Awarded by the New York State Society of Certified Public Accountants. Abstract only. Full-text article is available through the link provided. Published in CPA Journal, 64(4), 28-35.




New York State Society of Certified Public Accountants

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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.