A consumption tax would
A)discourage saving because individuals would only pay taxes on income they spend.
B)be progressive because everyone would be subject to the same tax system.
C)be proportional because everyone would be subject to the same tax system.
D)be progressive or regressive depending on the structure of the tax system.

Question

Quizplus · Accepted Answer

A consumption tax can be structured in a way that is either progressive or regressive, depending on whether it disproportionately affects lower-income or higher-income individuals. Therefore, option D is the correct choice. Option A is incorrect because a consumption tax may encourage individuals to save since they will not be taxed on their savings, and option B is incorrect because a consumption tax is not necessarily progressive simply because everyone is subject to the same tax system. Option C is partially correct because everyone would indeed be subject to the same tax system, but it does not address the issue of progressivity or regressivity.

A Consumption Tax Would