Consumption-based Taxation

If there were no income tax, the people would have more money to spend. If taxes were based on consumption, then the wealthiest people that can afford to buy goods and services would pay the most taxes. But they would not be forced to… they would make the choice to. If a rich person wants a boat, for example, and the taxes are included in the price of the boat, the buyer knows the exact cost of the boat, and will not purchase it if the price is not right. The boat company will not sell any boats unless the consumer can afford to purchase them.

A consumption tax controls inflation because companies are not going to raise the price of their goods and services if people cannot afford them—and the higher the price, the greater the tax. And given that the wealthy have all the money, they will be forced to pay their fair share of taxes, if they want to maintain their wealthy lifestyle. If the wealthy want a boat, a 20% consumption tax rate is not going to stop them. In fact, they will feel much better about paying a tax that is not forced upon them. Likewise, a poor person who wants a hamburger from McDonalds® is not going to mind paying 20% more for the right to eat a hamburger.

The problem with consumption-based tax rates and why they haven’t worked or been accepted by governments is because of the effect the consumption rate would have on the poor and needy, who would be subject to the same tax rate as the wealthy. For this reason, a proper consumption tax should only be applied to the goods and services that are not necessary for human existence (i.e., providing the Basic Necessities of Life—these goods and services should not be taxed).

Most importantly, governments can and should be mandated by law to provide the basic necessities of life to all people equally as part of their budgets. These vital social programs will then be financed through a consumption-based tax. When the government is forced to print money to fund these necessary social programs, the people who provide the goods and services for these programs will make a lot of money from the government contracts and grants mandated by law. The more money the people make, the more they will consume. The more they consume, the more taxes they will pay. This will eventually result in the government printing less and less money and the end of all taxation.

A government’s spending is funded through taxes. And thus, supported through taxation, the government then supports the economy through government spending. Under a consumption-based tax rate, as the government spends more, and the people receive larger paychecks, the people will spend (consume) more, which will result in more taxes going to the government. A worldwide consumption tax rate on all goods and services that do not support the basic necessities of human life will eliminate all other forms of taxation. Eventually, even the consumption-based tax will be eliminated.

Simple mathematical algorithms can determine the tax rate (allowing that, by law, the consumption-based tax rate cannot exceed 20%):

(GS*100) ÷ (GDP – GS); where GDP = Gross Domestic Product and GS = Government Spending (see graph below).

Gross Domestic Product (GDP) is the goods and services provided in a market. Whenever and for whatever one spends money, one adds to the GDP. Government Spending (GS) is what the government spends for social programs and its own operations.

The Tax Rate to be charged on the consumption of all goods and services outside of those required to support the basic necessities of life is determined by this simple equation:

(GS) ÷ (GDP) = TR (consumption tax rate).

Since there will be a cap of 20%, by law, there needs to be an equation to determine how much new money is required. The amount of new money (NM) needed to pay for government programs is determined by this simple equation:

NM = (GS) – (GDP x .20)*​

*The new currency needed would be the difference between the actual tax rate required to pay for government spending (GS) and the set 20% tax allowable by law. The new currency would increase the Gross Domestic Product for the following year, thus lowering the amount of new money needed to support the people’s needs.

Here is a graph (as an example) of what will happen when the algorithms are applied to a consumption-based tax along with printing enough money* to cover government spending (all amounts are approximated to their nearest decimal):

Year GDP
(in trillions)
(in trillions)
Tax Rate New Money
(in trillions)
1 15 5 20% 2.00
2 17 5 20% 1.60
3 18.6 5 20% 1.28
4 19.9 5 20% 1.02
5 20.9 5 20% 0.82
6 21.7 5 20% 0.66
7 22.4 5 20% 0.52
8 23 5 20% 0.40
9 23.4 5 20% 0.32
10 23.7 5 20% 0.26
11 24 4 17% 0.00
12 25 4 16% 0.00
13 26 4 15% 0.00
14 27.3 4 15% 0.00
15 28.7 4 14% 0.00
16 30 4 13% 0.00
17 32 4 12% 0.00
18 34.5 4 11% 0.00
19 38 4 10% 0.00
20 42 4 9% 0.00

With the new mandates on the government to provide education, healthcare, and social welfare, government spending (GS) will increase each year; but the economy will improve as people spend their money on other things. Taken into consideration is the influx of new money into the economy and the non-existent tax obligation of corporate earnings from the companies that provide the means of education, healthcare, and welfare, etc. under government contracts. The GDP will rise substantially and exponentially. And as the GDP increases, the tax rate will go down accordingly. After ten years, it is assumed that the people will become less and less dependent upon government support and increasingly engage in the free market where they can buy things that are over and above their basic necessities.

In the above graph, the new money is added to the next year’s GDP because people will spend the new money. The then increased GDP, taxed at the same rate, will reduce the amount of new money needed for the coming year. As indicated by the graph above, eventually there will be no need to print more new money, as there will be a surplus if the tax rate algorithm remains the same. Once there is a surplus, and no new money is needed, the tax rate will begin to fall as the GDP increases. As the tax rate decreases, people will have more money to add to next year’s GDP.

New money needs to be created (printed) so that it can become available for the use of all people involved in buying and selling goods and services to each other, thus increasing the GDP (Gross Domestic Product). Currently there is not enough money for everyone to be involved in the market place equally.

Note: Congress will have the power to legislate safeguards that limit the inflation rate on all goods and services guaranteed to the people in our Proposed Constitution to 1.5% per annum. See Article I: Section 9(c) and its corresponding Note 9.c to learn more.


Note: Congress will have the power to legislate safeguards that limit the inflation rate on all goods and services guaranteed to the people in our Proposed Constitution to 1.5% per annum. See Article I: Section 9(c) and its corresponding Note 9.c to learn more.