Chapter 7: Freeing savings
The income tax contributes to the overtaxation of capital. But there is a tax reform which could solve this problem. It consists in replacing the income tax with a tax which could be called the “overall expenditure tax”. The tax base of this new tax would be the same as that of the income tax, with the exception that taxpayers would be allowed to deduct from their tax base the part of their income which is saved, so that only the part which is consumed would be taxed. It can be shown that the overall expenditure tax would have desirable effects and that it could even justify the suppression of some other taxes. The rate of economic growth would certainly be increased in countries in which such a tax reform is chosen.
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