Question

A consumption tax is a tax strictly on spending, while an income tax is a tax on salary paid for work. You are contemplating a run for the presidency in 2012 and some of your economic advisors have argued that you should campaign to replace the income tax with a consumption tax. What argument for a consumption tax might they put forward to you?

Answer 1

Consumption taxes are generally considered better for the economy than income taxes.

Step-by-step explanation:

This is because consumption taxes promote saving and investment, since they are taxes that penalize consumption, and in such a situation, people would likely prefer to consume a bit less, save a bit more, and this additional savings become funds for more investment. More investment would then help the economy grow, creating a positive feedback loop. This is likely the argument that would be presented by the economic advisors.

Income taxes on the other hand, penalize people's hard earned income, whether it is from their work salaries, or from dividends, o from interest.