If you&#x27;re paid $100 in cash as wages and use it to buy food and pay rent, then your effective tax rate is equal to the sales tax rate.<p>If you or your company is earning $1m in profit, and use half of that for spending and buying goods (that are taxed by sales tax) and the other half to buy revenue-producing assets - shares of other companies, real estate, bonds - then half of your income isn&#x27;t taxed at all, your effective tax rate is twice as small as the tax rate on poor people.<p>This introduces an even stronger rich-get-richer mechanic to the society, as accumulating wealth <i>generation</i> (not just wealth) is tax-free.