<P> After 24 years, the balance increases only to $2.64 . The cumulative taxes in the latter case are $0.96 . The missing $4.26 is not lost by the economy in any sense, as the $4.26 is what the government would make in interest, if they invested their tax revenue . If the initial investment amount is not taxed when earned, but the earnings are taxed thereafter, the cumulative taxes paid are about the same, but are spread more evenly across the period and the asset grows to more than $4 . These results are primarily sensitive to the rate of return . With a 3% return, most of the tax receipts come from the tax on the initial $1.00 . </P> <P> To the extent that taxing something results in less of it (whether income or consumption), taxing consumption instead of income should encourage both work and capital formation, which will increase economic growth, while discouraging consumption . Secondly, the tax base will be larger because all consumption will be taxed . </P> <P> Some critics argue that sales and consumption taxes can shift the tax burden to the less well - off . The ratio of tax obligation shrinks as wealth grows because the wealthy spend proportionally less of their income on consumables . An individual unable to save will pay taxes on 100%, but individuals who save or invest a portion of their income will be taxed only on the remaining income . </P> <P> Many proposed consumption taxes share some features with the current income tax systems . Under these proposals, taxpayers would be given exemptions and a standard deduction in order to ensure that the poor do not pay any tax . In a pure consumption tax, other deductions would not be permitted, because all savings would be deductible . </P>

Which of these is an example of a tax on consumption