ABSTRACT
The main function of the income tax is to reduce income inequality. Equity considerations are paramount and outweigh issues of economic efficiency. This chapter presents a proposal that contains six main elements: A substantial expansion of the tax base as a major move towards a comprehensive income base. The retention of a simplified multi-rate progressive structure which includes three statutory rates and no surtaxes. A revenue-neutral reduction in the entire rate schedule. The full indexation of tax brackets and personal amounts to inflation. Some form of income averaging. The treatment of corporate and personal income taxes as separate taxes. No effort is made to integrate them, for reasons explained later. It also proposes that the most powerful incentive to economic activity is a low tax rate on all sources of income rather than selective tax breaks on some income sources and corresponding higher rates on others.
