Low saving has both personal and national economic consequences. Some households save very little and will be ill-prepared to retire. A nation with a low saving rate will have few resources available for productive private investment, or will have to borrow from abroad to finance investment. Higher saving could help support people in retirement, strengthen economic growth and raise living standards for all. Some forms of personal saving are taxed twice, once when earned and again when the saving produces investment income.
Corporate income is taxed at the corporate level and again when it is received by shareholders.
The income tax does not adjust capital gains and interest income for inflation. Under the flat tax, these issues simply would not arise, because all capital income is exempted from the household-level tax. But the actual increase would be smaller, for four reasons. First, our current system is not a pure income tax, but a hybrid between a consumption and income tax. This means these investments now earn the full pre-tax rate of return.