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Homework answers / question archive / A consumption tax that replaces an income tax a
A consumption tax that replaces an income tax
a. only taxes a household on the money it spends.
b. discourages saving.
c. would likely result in a lower level of saving than an income tax.
d. ultimately taxes income twice - once when the household pays income tax and once when the household makes a purchase.
A consumption tax that replaces an income tax only taxes a household on the money it spends. The tax base of such a tax is the money spent on consumption. this includes taxes such as sales tax, value added tax etc. This tax is also known as expenditure tax, consumed income tax and cash flow tax.
