A value-added tax applies to the market value added to a product or material at each stage of its manufacture or distribution.
In Australia, Canada, India, New Zealand and Singapore, it is instead called a "Goods and Services Tax."
The tax amount is usually ad valorem, that is, it is calculated by applying a percentage rate to the price of a sale.
Economists from Milton Friedman to Edward Gramlich and Robert H. Frank supported a progressive consumption tax.
21), Hamilton wrote: It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.
If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.
This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
[8] The Liberal Democratic Party government of Masayoshi Ōhira attempted to introduce a consumption tax in 1979.
Prime Minister Junichiro Koizumi said he had no intention of raising the tax during his government, but after his massive victory in the 2005 election, he lifted a ban on discussing it.
[16] Over the following years LDP politicians discussed raising it further, including prime ministers Shinzō Abe,[17] Yasuo Fukuda,[18] and Tarō Asō.
[19] The Democratic Party came to power in the August 2009 elections with a promise not to raise the consumption tax for four years.
[20] The first DPJ prime minister, Yukio Hatoyama was opposed, but Naoto Kan replaced him and called for the consumption tax to be raised.
The following prime minister, Yoshihiko Noda "staked his political life" on raising the tax.
[21] Despite an internal battle that saw former DPJ leader and co-founder Ichirō Ozawa and many other DPJ diet members vote against the bill and then leave the party; on June 26, 2012, the lower house of the Japanese diet passed a bill to double the tax to 10%.
[22] Despite considerable opposition and an attempted no-confidence motion from minor opposition parties the bill was successfully passed through the upper house on August 10, 2012, with the result that the tax increased to 8% in April 2014 and to 10% in October 2019 (twice postponed from the original date of October 2015).
If, in the absence of taxes, one dollar of savings is put aside for retirement at nine percent compound interest, the balance grows to $7.91 after twenty-four years.
The effective interest rate, thereafter, is reduced to six percent, since the rest of the yield is paid in taxes.
Under these proposals, taxpayers are typically given exemptions and/or a standard deduction in order to ensure that the poor do not pay any tax.
[3] A withholding system may be put into place in order to approximate the average tax liability, smoothing payments.
However, homeowners also consume housing in the same way, but as they pay down a mortgage, the payments are classified as savings, not consumption (because equity is being built in an asset).
The amount of money that the homeowner could receive in rent is the imputed rental value of the home.
Andrews proposes to ignore this method of taxing imputed rental values because of its complexity.
In the United States, home ownership is subsidized by the federal government by permitting limited deductions for mortgage interest expense and capital gains.
[26][27][28] Depending on implementation (such as treatment of depreciation) and circumstances, income taxes either favor or disfavor investment.
However, the consumption tax is levied also on past savings consumed later in individual's life, e.g. during retirement.
[29] According to theory, taxes have two opposing effects on individual's work decisions, the net impact might thus be unclear.