Does any economy actually have a consumption tax ?

[Stephen Tashi]

Does any economy actually have a "consumption tax"?

Since it's tax time for individuals in the USA, I have some idle curiosity about proposals for changing the tax laws. In particular, I wonder about replacing income tax with a "consumption tax". Is there any country or economy that acutally bases its tax system on a consumption tax?

I suppose there are various definitions of "consumption tax". My impression of it is that it's like a game of last-to-pay-loses - like a sales tax only paid by the last consumer of a good (the one that doesn't make other goods from it). I don't know how that definition can be made rigorous. For example, if a person needs a car for his business of delivering newspapers, the car isn't an ingredient of the newspaper, but it is necessary for the service, which is what the person is "manufacturing".

 

[Locrian]

The VAT tax is considered a consumption tax. However, I'm not sure it fits your particular definition.

 

[Tosh5457]

I don't know if there is any country that bases its tax system on consumption tax. But about your suggestion, can I ask just out of curiosity, why do you consider such a tax system?
A problem I see with it is that people with low incomes have to spend a big % of their income as consumption, while people with higher incomes don't have to. So the effective tax rate would increase as incomes got lower.

 

[skeptic2]

Mexico has both a sales tax and a VAT. The sum of those amounts to about 18% and varies by product.

 

[Stephen Tashi]

But about your suggestion, can I ask just out of curiosity, why do you consider such a tax system?
.

I'm not suggesting such a tax system. It's often been suggested by tax reformers in the USA and I'm just curious what would happen if one were implemented. Usually taxes produce a certain amount of weird behavior that wouldn't occur if it didn't have tax consequences.

 

[ImaLooser]

I'm not suggesting such a tax system. It's often been suggested by tax reformers in the USA and I'm just curious what would happen if one were implemented. Usually taxes produce a certain amount of weird behavior that wouldn't occur if it didn't have tax consequences.

Such taxes are very common. Sales tax, VAT, import duties, property tax, etc. A tax on food would be very regressive, a tax on yachts or concert grand pianos would be highly progressive. An across-the-board consumption tax would be a highly regressive tax, shifting the burden onto the lower and middle classes. Such taxes always generate under-the-table transactions to avoid the tax, and lying to the government about the price to reduce the tax.

In the old Roman days the government would grant a monopoly on basic goods like corn, and tax the profits. The advantage is that it is very easy to administer as there is only one party to deal with and it is easy to make an estimate of how much income there was. They ameliorated the highly regressive character by giving out free bread to the poor.

A common system in the old days was to tax a farm according to how prosperous it appeared to be. There was a great deal of concealment of wealth.

In the old days (1970) in Italy status symbols like sports cars were heavily taxed.

 

[arildno]

"In the old Roman days the government would grant a monopoly on basic goods like corn, and tax the profits."
It was rather an auctioning system, in which the highest bidder was compelled to pay the (republican) Roman State what his bid was, and it was up to he and his men to make up for their outlay by scooping in what was called "taxes".

The state didn't really need to know what the actual profits these guys made, and only had to respond to actual complaints about "rapacious" tax-collectors...