The Comprehensive Capital Tax (CCT) is an annual charge calculated by applying the flat tax rate to a ‘minimum required return’ from real assets less interest costs (the minimum required return is set by government but 6% was assumed in the Big Kahuna). The CCT applies to real assets such as land and housing and the long term (‘non-current’) assets of businesses. The CCT is integrated with business income tax so businesses that earn more than the required return pay no more tax as a result of the CCT.
The CCT recognises and taxes the implicit returns possible from wealth while also acknowledging any cash income the wealth produces.
The CCT achieves two goals – it contributes to a set of policies that effectively redistribute from the well-off to the rest of the community and introduces a common tax treatment for all real capital.
The key to ensuring tax policies redistribute from those with lots of resources available to them is to recognise that it is wealth that matters (not just the actual cash income the wealth produces). Wealth can be used to produce cash income, and that is typically taxed, but it can also produce untaxed income (such as capital gains) and untaxed personal benefits. So it is important to tax all wealth equally, no exemptions. This is achieved by the CCT.
As well, the CCT removes current tax distortions which influence investment. Current policies, by omitting to tax capital gains and personal benefits, create incentives for more wealth to be invested in housing and lifestyle assets than would otherwise be the case. This is a drain on our economy which has hampered growth.