Taxing Capital Income and the Z-Tax Solution

50 Pages Posted: 13 Jun 2019

See all articles by David Ingles

David Ingles

Australian National University (ANU) - Crawford School of Public Policy - Tax and Transfer Policy Institute

Date Written: May 28, 2019

Abstract

This paper looks at issues with conventional approaches to capital income taxation, such as the income tax, the capital gains tax and the cash-flow consumption tax, and finds that there are difficulties with all of these. It proposes an alternative solution based on treating ordinary capital income in the same manner as capital gain, with tax deferral until drawdown. To achieve this it relies on a novel combination of two taxes, the pre-paid and the post-paid consumption tax, whereby tax levied under the latter takes account of tax previously paid under the former. In other words this ‘Z-tax’ is a modified form of cash flow consumption tax where much of the tax is payable up front. It potentially allows all capital income to be treated similarly, and allows excess returns - economic rents - to be taxed.

Keywords: Z-tax, capital gains tax, cash flow tax, consumption tax, capital income taxation, tax reform, economic rent, expenditure tax, comprehensive income tax, rate of return allowance

Suggested Citation

Ingles, David, Taxing Capital Income and the Z-Tax Solution (May 28, 2019). Tax and Transfer Policy Institute - working paper 6/2019. Available at SSRN: https://ssrn.com/abstract=3396228 or http://dx.doi.org/10.2139/ssrn.3396228

David Ingles (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy - Tax and Transfer Policy Institute ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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