Economics Case Study: What should be taxed - Personal Income or Personal Consumption, and why?

Economics Case Study
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Economics Case Study
Q1: What should be taxed - Personal Income or Personal Consumption, and why?
Based on the case study, personal consumption rather than personal income should be taxed as it limits the penalizing of taxpayers earnings and saving until when consuming it years later. According to Riese (2017), personal income taxation treats taxpayers unequally and would impact an individual’s lifetime income taxes. The personal consumption tax, on the other hand, leads to an increase in savings and ultimately, one’s investments. All unconsumed products remain irrelevant until they are consumed. The consumption tax is no doubt a fair because unlike the income tax; it does not discriminate against savers (Riese, 2017). From a lifetime perspective, consumption taxation is most preferred as it does not interfere with a taxpayer’s liberty.
When the unconsumed resources stay in the common pool, it is unfair to tax an individual at this time until the taxpayer is finally consuming these resources. Doing this allows the increase of resources, which, as a result, increases future productivity and production. According to Riese (2017), personal consumption tax encourages taxpayers to save and invest, which contributes to making the economy efficient. Supporters of a consumption tax argue that it is better to tax people when they have taken their resources from the common pool instead of when they are earning. The consumption tax is also associated with utility as it considers what a taxpayer does with their social product. Riese (2017) posits that personal consumption tax would save the economy a hundred billion dollars every year as it will also ensure that low-income families are free from taxes. The consumption tax, a tax imposed on what people spend on rather than their income earn, somewhat helps states increase the share of their revenue.