Consumption Tax
“Because the country needs to save more, taxing savings makes no sense.”
Robert Frank, a Cornell University economist and visiting scholar at the Stern School of Business at NYU, wrote an article in the NY Times in favor of a consumption tax. Mr. Frank suggested that consumption equals income minus savings. In other words, a consumption tax is an income tax that let you deduct savings from your taxable income.
This is a great way to encourage consumers to save. The more money consumers keep in their bank account, the less taxable income there is. So naturally, people would save money to avoid paying higher taxes.
However, certain consumptions are investments. For instance, investors purchase stocks and real estate. Under the consumption tax, these purchases would surely be taxed. But it makes no sense to tax investments either because investments are the force of our economic growth. Would the addition of tax on the investment equates to adding more risk to the investment and therefore deter people from making the investment?
Source: http://www.nytimes.com/2008/11/09/business/09frank.html
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