What are the Advantages and Disadvantages of a Tax on Earnings?
A tax on earnings is a tax on income whether it be salary, inheritence, or profits from investments. This is often contrasted with a consumption tax, where taxes are imposed on those goods and services that are consumed. Some argue that consumption tax would be a better way to go than tax on earnings, since it is argued that people who earn more, would reasonably spend more, thus making the tax structure more equitable. The advantages of imposing a tax on earnings can include the following: • People are taxed based on total income, thus people who make less theoretically pay less tax on earnings. • Not all people consume at the same rate, therefore tax on earnings is a more equitable way of assessing tax than with a consumption tax. • People with lower incomes would be the most impacted by a straight tax on consumption, since even necessary items like cars would be significantly more expensive. • Income is an easier way to levy taxes and decide deductions. While people may deal with a
