- consumption tax
a tax, as a sales tax, levied on consumer goods or services at the time of sale.[1900-05]
* * *Consumption taxes fall more heavily on lower-income than on upper-income groups because people with less money consume a larger proportion of their income than those with more money. See also progressive tax, regressive tax.
* * *a tax paid directly or indirectly by the consumer, such as excise, sales (sales tax), or use taxes (use tax), tariffs (tariff), and some property taxes (property tax) (e.g., taxes on the value of a privately owned automobile). Advocates of consumption taxes argue that people should pay taxes based on what they take out of the pool of available goods (their consumption) rather than what they contribute to that pool (their income, under the implicit assumption that income measures the reward for productive work). Those who oppose consumption taxes view them as regressive (regressive tax), because wealthier households consume a smaller fraction of their incomes than do poorer households. This argument must be qualified, however, because a wealthy person's savings will eventually be consumed, either later in that person's life or by heirs and other beneficiaries (including governments, which are enriched through estate (estate tax) or inheritance taxes (inheritance tax)). The most consequential type of consumption tax is the value-added tax (VAT). Used widely in European countries, the VAT raises a substantial portion of total tax revenues. In response to concerns about regressivity, consumption taxes are often levied at different rates on different commodities according to perceptions of the extent to which a commodity is a necessity (such as food) or a luxury (such as jewelry).
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