not lost by the economy in any sense, as the $4.16 is what the government would make in interest, if it had invested its tax revenue in the same investment. If the initial invested amount is not taxed when earned, but the earnings are taxed thereafter, the cumulative taxes paid are the same, but are spread more evenly across the period. These results are primarily sensitive to the rate of return; for example, with a three percent return most of the tax receipts come from the tax on the initial dollar. 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 increases economic growth, while discouraging consumption. Secondly, the tax base is larger because all consumption is taxed. Flat consumption taxes are regressive (shift the tax burden to the less well-off). The ratio of tax obligation to income tends to shrink as income increases because high-earners tend to consume proportionally less of their income. An individual unable to save will pay taxes on all his income, but an individual who saves or invests a portion of his income is taxed only on the remaining income. Practical considerations Many proposed consumption taxes share some features with income tax systems. Under these proposals, taxpayers are typically given exemptions and/or a standard deduction in order to ensure that the poor do not pay any tax. In a flat consumption tax, these other deductions are not permitted. A withholding system may be put into place in order to approximate the average tax liability, smoothing payments. It is difficult for many taxpayers to pay no tax all year, only to face a large year-end tax bill. Andrews notes the inherent problem with housing. Renters necessarily "consume" housing, so they would be taxed on the expenditure of rent. However, homeowners also consume housing in the same way, but as they pay down a mortgage, the payments are classified as savings, not consumption (because equity is being built in an asset). The disparity is explained by what is known as the imputed rental value of a home. A homeowner could choose to rent the home to others in exchange for money, but instead chooses to live in the home. Therefore, the homeowner is also consuming housing by not permitting renters to pay for and occupy the home. The amount