The rich should not excessively subsidise the poor through the taxation system. A flatter system of taxation is fairer, if wages reflect productivity. The main justification for such redistribution is that some of the rich do not deserve their riches. But the answer to this is to change the system which allows some to get so rich unjustifiably, rather than to tax heavily all those who are wealthy, some justifiably. To impose high taxes upon all rich just because they can supposedly afford it, and to use that money to improve the standard of living of the poor, a colour television for all, amounts to theft in my opinion.
If higher rates of taxation are to be applied to those who are wealthier, and this is not always wrong as many do not deserve their wealth, what should be taken into account is not only income, but the number of people supported on that income. It makes no sense to tax a family more if the income is earned by one person, than if was earned by two. A low rate of luxury tax more precisely distinguishes between those able to pay more tax and those who cannot. A high rate of luxury tax is not good because it distorts the market, and may reduce expansion of employment into new fields as the general standard of living increases with technology.
Heavy taxes should be imposed upon all forms of economic parasitism: land speculation, share speculation, and currency speculation. When land is rezoned, almost all the profit should be taxed. Why should a few gain a windfall without any work. And those who profit from knowing better than others when to buy and sell shares, profit at the expense of those less skilled. Knowledgeable share speculators thus reduce the general profitability of the share market, discouraging investment. To discourage speculation, higher taxes should apply to shares sold soon after purchase. Perhaps there should also be a general trading tax. This would encourage concern for the long term viability of companies, creating financial stability.
Takeover billionaires usually reduce investment in the company and product quality, increasing short term profits and the share price. After a few years the company is sold at a great profit, but the lack of investment reduces the future potential of the company and its long term value. But by then the takeover merchant has made his fortune by deception, deception because those who buy the products and shares in the company take time to wake up to the reduction in the quality of the products and investment.
A partial answer to this is better information to consumers on product quality, and better and simplified disclosure of the effective long term investment in the company as a ratio of its output. But another answer is to tax heavily short term speculation. There seems something wrong with risking other people’s money, making huge profits for yourself if you are lucky, and someone else losing if you are unlucky. I think that government regulation should limit profits made on borrowed money through excessive commissions and excessive speculation.
A high marginal tax rate means that extra diligence and training to gain promotion, results in less gain than it should. And hours worked in overtime are taxed more heavily than average hours. This creates a Do-It-Yourself mentality. It is not profitable to do extra work and use the money to employ a gardener or cleaner. And the wages of such are reduced because the extra work to pay for such is taxed heavily. But if the person does their own gardening they pay no tax. If their marginal tax rate was 50%, they must earn twice as much as a gardener, for it to be sensible to employ one. Some domestic servants who are on low wages may gain a net benefit from a flatter system of taxation, through higher wages, as there would be more money available to pay them, even though they themselves may pay more tax. And there would certainly be more work available.
A flatter taxation system would allow the man to work harder to support wife and family without it being necessary for her to work such long hours, at least until her children were older and needed less support.
An economic injustice is to apply tax to absolute value of interest rates, and not just to their real component. In high inflation times taxes may exceed real profit. The average person can thus not afford to put his money in the bank. Even in low inflation times, after tax profit on bank interest is negligible. So many people with little knowledge of the stock market invest in it, some of them unwisely, because in the stock market they are only taxed on real profit. It would be better if the average small investor was able to deposit in a merchant bank and trust the expertise of the bankers, rather than their own. This would also allow risks to be averaged.
Some countries have administratively expensive superannuation schemes with low taxes, to encourage savings for retirement, but they do not do the obvious and allow the average person to save and see their money grow by simply putting it in the bank. In Australia 10% of national savings for retirement is wasted in superannuation administration. Yet this is encouraged by tax incentives, while at the same time savings are discouraged by reducing the pension if you save. It would be much better to scrap tax incentives for superannuation and simply reduce the scale at which the old age pension was lost.
For governments to rely heavily on taxes from the inflationary component of interest rates, makes government income very dependent upon inflation. In times of high inflation, when interest rates are high because of the inflationary component of interest rates, the government earns much more money. This form of effective theft creates much financial uncertainty in the treasury. It is effectively a wealth tax.
Another taxation injustice may be to tax companies soon after start up on their annual profits in the same way as for established companies. A company may make a loss for many years and take many years to recoup the initial investment. It is not always fair to tax a company on the full profits one decade if they made a loss during the previous decade. If taxes are paid too soon, it will discourage long term venture capital, especially on some newly emerging technologies. What is needed is not so much for the government to try to pick winners and give them special tax incentives, but to have an established principle that long term projects should not be taxed at a higher effective rate than standard projects. This means more detailed work for the tax office, not to find more things to tax, but to apply fair tax averaging to more companies.
Lower indirect taxes could also be applied to new types of products, to encourage employment growth in new industries, rather than replacement of personnel in existing employment. This measure could be used in conjunction with employment growth schemes.