Consumption taxes and saving: the role of uncertainty in tax reform

Article Abstract:

The influence of tax reform on savings is examined in a general-equilibrium, overlapping-generations and stochastic life-cycle simulation model of the U.S. tax system. A shift from a progressive hybrid income-consumption tax to to a flat-rate consumption tax raises gross domestic product by around 1% to 2% in the long run, and long-term savings by 0.5%. The results are influenced by the shift to a consumption-based tax which lessens taxes on households with more savings by lowering tax rates on new savings and increasing after-tax return to saving.

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Sashini

May 26, 2012 @ 6:06 am

I work and have a home based type business (party plan) and do prttey well with it, as well as my regular "day job" which I have had to cut back on hours because the home business is doing so well.I file together, using a schedule SE for my home business to take the deductions out such as mileage (a HUGE deductions) airfare and hotel for training events, and usually after the mileage is calculated I wind up owing nothing on my home based business. I also deduct postage and advertising expenses, and office supplies, demo products, and any losses such as damaged or broken items I write them off.I do travel quite a distance to do my parties, several times a week.You cannot deduct clothing or dining expenses, or "fluff" your deductions, it will set off a big red flag, so be very careful that you only deduct what you actually can legally. Was this answer helpful?

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Neglected effects on the uses side: even a uniform tax would change relative goods prices

Article Abstract:

A computational general equilibrium model is used to examine the effects of fundamental tax reform on the uses side, or the usage of income to purchase commodities. Results indicate that the uses of income are important and should not be neglected. Any comprehensive and uniform tax reform gives similar effects, whether the existing system is replaced by a wage tax, a pure income tax and a consumption tax. The effects on the uses side are influenced by the nonuniform tax system being substituted.

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How different are income and consumption taxes?

Article Abstract:

The economic effects of replacing the existing US tax system with a broad-based income tax or a broad-based consumption tax are relatively insignificant. A move to a broad-based consumption tax is mostly consistent with a shift to a pure income tax with uniform capital taxation. A shift from pure income tax to a consumption tax mainly involves the substitution of depreciation allowances for physical investment with expensing of capital assets.

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