Federal Income Tax vs a Consumption Tax

This paper will examine the possibilities of implementing a national consumption tax as the principal means of raising revenue in the United States, replacing the current federal income tax. The first part of the paper will provide an introduction to the topic, discussing the economic problems which could be addressed by a national consumption tax and a few of the main attributes of consumption taxes. The second part of the paper will outline some of the political and economic arguments in favor of and against consumption taxes. The third part of the paper will discuss how a national consumption tax could alleviate some of the economic problems facing the United States, especially the budget deficit and the national crises in savings and investment. The fourth and fifth parts of the paper will examine in some detail the issues of neutrality and equity with regard to consumption taxes. The sixth part of the paper will discuss the different types of consumption taxes, especially focusing upon the mechanics of value-added taxes, and examine some of the administrative concerns.

The debate over the viability of consumption taxes in the United States has existed since the origins of the country. Although an income tax was adopted by the federal government as the principal means of raising revenue, a consumption tax has long been considered. The philosophy behind consumption taxation has its roots in th

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f taxpayers can expect to live for many years in the future and are not cash constrained. Income in these households can be temporarily high or low without greatly affecting the households' lifetime resources or current consumption. This is especially true in the case of very wealthy families, whose resources are little affected by the highs and lows of their current annual income. As note above, consumption has long been considered a good indicator by many of the ability to pay taxes. Many economists consider consumption to be the taking of resources from the economic system, resources which might otherwise have been used for investments or government purchases. This probably represents the thinking that those who consume the most resources should pay the most back to society in the form of taxes. This philosophy also works to inhibit the excessive consumption of resources, especially in societies where resources are scarce. Furthermore, lifetime consumption represents how much an individual takes from a society's resources much better than that individual's annual income for any given year. Using current income as a reference base can actually lead to policies that reduce rather than enhance the degree of tax equity.
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Some common words found in the essay are:
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Approximate Word count = 6905
Approximate Pages = 28 (250 words per page)

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