This paper proposes that tax reform should take the direction of focusing on economic rent as the tax base. Since personal incomes that are very high typically carries a large component of economic rent, even very high marginal tax rates may not have much adverse effect on effort provided that the tax bands are wide enough so that, say, 90% of the working population will enjoy very low marginal tax rates. From this perspective, the author proposes to abolish the profits tax altogether, but to treat dividends and capital gains (net of inflationary gains) the same as labor income.
Ho, L. S. (2013). Tax reform: Toward a simpler, more pro-growth tax regime (CPPS Working Paper Series no.193). Retrieved from Lingnan University website: http://commons.ln.edu.hk/cppswp/96/