consumption tax

A taxation system in which taxes are assessed on how much the taxpayer spends instead of on the taxpayer’s income. The idea of a consumption tax in the United States picked up steam in early 2003 when President George W. Bush and his Council of Economic Advisors backed it. However, a consumption tax draws criticism from some people who argue that it is a regressive tax that would hurt poor people more than the rich. One type of consumption tax is a value-added tax (VAT), which is common in Europe. Businesses pay a VAT tax, which is passed on to the end consumer.