The Double Tax on Saving

In an earlier post I argued for expanding tax-deferred retirement accounts because they eliminate the double tax on saving that exists under the current tax system. Here is the basic idea. People earn income and pay income tax on that income. If they save it and then earn interest (or dividends, or capital gains, etc.), they will be charged income tax on income that has already been taxed, amounting to a double tax.
To see that this is the case, consider this simple example (numbers chosen to make the example easy to follow).
Assume that with no income taxes, you decide to

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