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advantages and disadvantages of a consumption tax versus an income tax

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advantages and disadvantages of a consumption tax versus an income tax

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[Solved] advantages and disadvantages of a consumption tax versus an income tax

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Name Instructor’s Name Course Title Date Advantages and Disadvantages of a Consumption Tax Versus an Income Tax Introduction The formulation and implementation of policies to impose income or consumption taxes result in specific advantages and disadvantages to different stakeholders. While both taxes impose a financial burden on the payers, any of them can be interpreted as advantageous or disadvantageous compared to the other due to their financial and non-financial implications on the taxpayers. Consumption taxes are levied on a wide range of product and service offerings, while income taxes are imposed on the specific income earned by an individual on the provision of labor or capital services. While income taxes are associated with different modifications of expenses to determine the taxable amount, consumption taxes are not subject to such adjustments. While income tax is levied on the finances generated from the provision of labor or capital services, consumption tax is charged on the value of goods or services consumed by an individual. Advantages of Income Tax Income taxes are mostly progressive, and the primary advantages of such tax systems are centered on equity and fairness. A progressive tax system implies that individuals are taxed proportionately to their income levels. Therefore, individuals with the highest income levels are subject to the highest tax charges while those with low-income levels are subjected to minimum tax liability (Eleniewski et al. 27). Therefore, the fairness and equity of income taxes are driven by the fact that individuals with high incomes have higher abilities to pay more taxes compared to low income earners. Therefore, income taxes are advantageous because they impose fair and just financial burdens on the taxpayers depending on their ability to bear them. Income taxes are also advantageous because they are strong behavioral influencers. Taxing authorities and political regulators can utilize certain credits and deductions to shape the behavior of taxpayers as exemplified by the provision of tax credits to corporations or individual investors who utilize pollution control equipment to minimize their environmental impact due to harmful emissions (Eleniewski et al. 28). The argument of behavioral influence as an advantage of income tax credits to such firms and individuals is driven by the fact that they are incentivized to act in a responsible manner to reduce environmental degradation. A taxing authority may also impose penalties on individuals without health insurance to encourage citizens to purchase such services. Moreover, such a tax-based behavioral driver can serve as a potent tool for influencing other aspects such as economic growth within a nation by inducing the economic choices available to the ta...
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