Years ago I worked in structured finance for an investment bank, creating tax-efficient structures for large corporations. That left me with the lasting impression that income taxes are inefficient \u2014 both in terms of equity and collection \u2014 and should be levied at low flat rates if they cannot be avoided altogether.<\/p>\n
Any tax acts as a disincentive. The impact of flat taxes at low rates is mild. We don’t often think of GST\/VAT as deterring consumption. But income tax, with progressive tax rates, acts as a massive disincentive on production. If there was no income tax, we would all be encouraged to work harder. Doctors might not play golf on Wednesdays, but the average worker would also seek more income because they aren\u2019t giving half of it back in taxes. This would give a significant boost to GDP. Interest would also not be taxed, creating an incentive to increase savings.<\/p>\n