Should capital income be taxed? And if so, how?

Vol: 
4/2015
Author name: 
Ingles D
Year: 
2015
Month: 
August
Abstract: 

There are three main approaches to taxing capital income, being the income tax, the expenditure tax – which effectively exempts most capital income - or hybrids such as the rate of return allowance (RRA). This paper considers the theoretical arguments for taxing capital income less than fully, and finds that they need to be qualified. A strong case can be made for at least taxing that component of capital return which is above the risk-free rate (e.g., the bond rate). While the RRA favoured by the Mirrlees Committee does this, it is administratively cumbersome and the author proposes a new approach called the Ztax which uses cash-flow tax principles to arrive at an end result which can be made similar to the RRA.

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