In theory it'll work like this: all investments and savings are tax-deductible, all withdrawals are taxed at the ordinary rate. The practical implementation would probably to designate tax-protected accounts, similar to how IRAs work nowdays. The top tax rate would probably need to be increased.

There will need to be tax treatments for potential loopholes, like shifting consumption under a business you own or own in part, or time-shifting withdrawals, but overall economists think this would be far more elegant and simple than income taxation.