If a consumption tax such as a national sales tax is used to replace a previous income tax (as some propose), then the persons most severely penalized are those who have previously managed, despite past income taxes, to save their income diligently by deferring consumption. In short, such persons are subjected to discriminatory double taxation. The mere expectation of such a future tax policy is therefore sufficient to discourage both production and investment. Even the precedent set by such a policy is inherently destructive, for it sends a message to all individuals that the products of their efforts are henceforth subject to ex post facto seizure.

An often advocated variant on the national sales tax is the value-added tax (VAT), which is imposed not only upon consumers' goods but also upon the output of every stage of production. Such a tax, of course, impairs production and investment in the same manner as other income and sales taxes. In addition, the VAT skews structures of production, by conferring special advantages upon large, inefficient conglomerates based on vertical integration—that is, the management of two or more successive stages of production by one producer, as illustrated by the next example.