Expenditure Tax

An expenditure tax is often also called a consumption tax; it is any tax levied on the money people spend instead of what they earn. An expenditure tax might include sales tax and tariffs.

Although it might seem at first glance that expenditure taxes would have the most effect on those who spend a lot (and therefore those who earn a lot), the truth is that low-income individuals are more likely to spend most of their income. To the extent that expenditure taxes are used to offset income tax, a tax system based on expenditure taxes would favor the wealthy, because they would pay tax on a lower proportion of their overall wealth. Others argue that expenditure taxes can be made progressive through rebates and other offsets designed to minimize the impact on the poor