In the United States, consumption taxes (such as sales taxes) are typically state rather than federal taxes. In Europe, consumption taxes are imposed nationally rather than regionally, and they are mostly far higher than U.S. consumption taxes.
a. If the United States were to reduce income taxes and impose a national sales tax, what would be the primary effects on consumption and investment? Briefly explain.
b. Would you expect a consumption tax to have a different effect on consumer savings than an income tax? Briefly explain.