Other forms of consumption are often subject to sales taxes. The fallacious notion that such taxes do not penalize production or investment is widespread. Even many persons who are otherwise sympathetic to the free market have advocated a national sales tax, intended as an alternative to the present income-tax system. Again, it must be emphasized that the ultimate end of all production is consumption. Even when income is not consumed immediately but is instead invested, the purpose of that investment is to increase the product that will eventually be available for consumption (pp. 4.7:1-6). Furthermore, most of us (aside from misers) do not work or invest in order to earn dollars per se, but rather to acquire the goods that those dollars can purchase; money serves merely as a medium of exchange. Our real income is therefore measured in buying power. Any tax that reduces that buying power is in effect a tax on our real incomes, and a tax on consumption is thus equivalent to a deferred income tax.

Like any other income tax, a sales tax discourages production and prosperity to a degree reflecting its marginal tax rate. Because consumption taxes are typically flat-rate, the marginal tax rate is mathematically equivalent to that flat rate.