The United States imposes consumption and excise taxes on a variety of items. The most popular are taxes on alcohol, tobacco, and gasoline. Another type of consumption tax is imposed on health-related products. This tax is collected by states and some municipalities. The federal government also collects excise taxes.
The effects of consumption taxes are generally regressive, and disproportionately affect the poor. For example, in Sweden, consumption taxes disproportionately hurt the urban poor. The taxation of consumption is a key factor in the development of a nation’s economy. Yet, there are a few factors that can help to make consumption taxation more equitable.
Value Added Tax (VAT) is an indirect tax that is imposed on most goods and services. Unlike Income Tax, which is a direct tax paid by an individual, VAT is collected at each stage of the production and movement process. It is usually a small percentage of the final price.
The adoption of income tax was influenced by war pressure. Conscription during World War I led to the adoption of more progressive income tax rates. The development of income tax rates was positively correlated with the development of fiscal capacity. The distributional effects of income tax rates depend on the effectiveness of tax administration and enforcement. However, high nominal rates are unlikely to generate much resistance.