Economic Definition of consumption tax. Defined.
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Term consumption tax Definition: A tax on consumer's spending for goods, services and the other stuff they buy. One sort of consumption tax is the sales tax. Some politicians and balding, bespectacled economists argue that the current income tax system should be replaced with a consumption tax. This means any income that's saved wouldn't be taxed. The idea behind a consumption tax is to encourage saving, which is then used for investment, which then promotes economic growth. Such a tax would be easily implemented (you get a deduction for saving on the current income tax form), but it would tend to be a regressive tax hitting the poor harder than the wealthy.