Asked by Aleyna Akgun on Apr 25, 2024
Verified
Why do some policymakers support a consumption tax rather than an income tax?
A) The average tax rate would be lower under a consumption tax.
B) A consumption tax would encourage people to save earned income.
C) A consumption tax would raise more revenues than an income tax.
D) The marginal tax rate would be higher under an income tax.
Consumption Tax
Taxes applied on spending on goods and services, such as sales tax or Value Added Tax (VAT).
Income Tax
A tax levied by governments on individuals' or entities' income. The rate can vary based on income levels or earnings.
Average Tax Rate
The proportion of total income that is paid as tax, calculated by dividing the total amount of taxes paid by the taxpayer's total income.
- Assess the impact of taxation on savings and expenditure habits.
Verified Answer
SI
Sabrina Inocencio6 days ago
Final Answer :
B
Explanation :
A consumption tax encourages saving because it taxes people on what they spend rather than what they earn. This means that if someone decides to save their income instead of spending it, they can defer or potentially avoid taxation, thereby incentivizing saving over immediate consumption.
Learning Objectives
- Assess the impact of taxation on savings and expenditure habits.