From the Physiocrats through Adam Smith and John Stuart Mill to socialists such as Ferdinand Lasalle and America’s Progressive Era reformers, they concluded that the main source of taxation should be unearned income, defined as land rent, monopoly rent, other forms of economic rent (income extracted without playing a necessary role in production) and capital gains on these rent-yielding assets, mainly land sites. As matters stand today, you could raise the income tax to 100% and still not capture the actual cash-flow revenue of real estate, monopolies, and multinationals who use transfer pricing to manipulate their income and expense statements to show no reportable taxable income at all. Real estate owners don’t even have to pay a tax on capital gains ­what Mill called the unearned increment if they plow back their sales proceeds into buying even more assets. Given the existing loopholes, I would prefer not to tax corporate profits or even income at all, if the government could tax the free lunch of economic rent at its source. The discussion of WHAT to tax therefore should take precedence over how highly to tax the scant income that wealthy people are obliged to declare from the FIRE sector ­ finance, insurance and real estate. The idea of a flat tax, for instance, is that all income is equally worthwhile ­ except that the flat tax avoids taxing property or cash flow that FIRE-sector lobbyists have managed to get the IRS to counts as costs. read more