By Ralph Andrews
“Tax wealth, not work” has become a popular rallying cry in progressive circles.
Here’s a more radical proposition:
Tax production, not work — and prevent extreme wealth from forming in the first place.
Across the world, governments are grappling with a rising cost of living and a shrinking public budget to deal with it. Desperately searching for levers to pull, they often end up squeezing those with the least room to breathe: cutting welfare, freezing income tax thresholds despite inflation, or raising indirect taxes that quietly erode living standards.
For a majority, basic necessities become harder to afford, as private services rise year-on-year and public services are hollowed out. And yet for a wealthy minority, the richest 1% still glide through largely untouched.
But wait — don’t most countries have progressive income tax systems? Aren’t the highest earners meant to shoulder the tax burden? So their money can “trickle down” to those parched?
In fact, the richest use their wealth precisely to escape income taxation: converting income into capital gains, parking assets in property, shifting profits offshore, or hiring accountants to research the latest in the complex science of taxation loopholes. Income tax becomes something the poor reliably pay and the rich reliably avoid. Poor people pay too much, while the wealthy work tirelessly to maintain the tax gap.
PROUT (Progressive Utilization Theory) draws a compelling conclusion:
Abolish income tax altogether.
Ironically, the ultra-rich already seem to agree, they’ve been abolishing it for themselves for years.
So where does public revenue come from instead? There is another approach — one that is far less discussed, but which far more structural implications:
Taxation at the point of production.
The scale of the problem: income tax evasion
Income tax is often treated as the backbone of public finance. In reality, it is one of the weakest points in the system.
Consider this: How much income tax did you pay in 2018? Elon Musk paid zero. In 2007 and 2011, Jeff Bezos paid zero. During those same years, Jeff’s wealth soared — yet his effective tax “burden” hovered around 1%, even benefiting from refundable tax credits designed for low-income families.
Compare that to the average US household, whose wealth has not even kept pace with the taxes they consistently pay.
Image source: ProPublica
This is not anecdotal. It is systemic.
- Forbes reports that between 2014 and 2018, the combined net worth of these 25 individuals grew by $401 billion. Yet, IRS data shows they paid just $13.6 billion in federal income taxes over those five years — equivalent to an effective tax rate of only 3.4%.
- The Institute on Taxation and Economic Policy found that 23 major US corporations paid no federal corporate income tax between 2018 and 2022, while 109 paid zero in at least one of those years.
- Oxfam estimates that EU governments lose €286.5 billion every year to unpaid taxes — roughly €33 million every hour.
- In several countries, the top 1% pay a lower effective income tax rate than the bottom 20%, despite controlling vastly more wealth.
- Globally, multinational corporations shift nearly $1 trillion in profits each year to tax havens, draining public treasuries across both the Global North and South.
The paradox is stark. Those with the greatest capacity to pay contribute proportionally the least. Those with fixed or low incomes pay most reliably. Governments respond by raising VAT, fuel duties and service taxes — wielding blunt instruments that hit everyone, but lands hardest on those least able to shield themselves.
Why the current system produces inequality
Modern tax systems focus on two points: income (after it is earned) and consumption (when goods are purchased). Both are structurally flawed.
Income tax becomes increasingly avoidable as wealth grows. Capital moves faster than regulation, and enforcement always lags behind innovation in avoidance.
Consumption taxes like VAT (value added tax) are inherently regressive. Even with reduced rates, taxing consumption means taxing survival. Low-income households spend a far higher share of their income on food, energy and essentials than the wealthy ever will.
Meanwhile, essential commodities pass through profit-driven supply chains layered with mark-ups, speculation and price manipulation. The system does not merely fail to reduce inequality — it actively reproduces it.
Wealth tax or preventing wealth?
Wealth taxes have resurfaced in the mainstream debate. But they suffer from the same weaknesses as income tax:
Valuation disputes – Determining the exact value of a billionaire’s assets isn’t straightforward. Art collections, private companies, complex investments, and offshore holdings can be hard to appraise accurately, leaving room for disagreement and manipulation.
Capital flight – High-net-worth individuals can move their money, investments, or even residency to countries with lower taxes. A wealth tax can prompt this flight, eroding the very revenue it seeks to generate.
Legal avoidance – The ultra-rich can exploit loopholes, trusts, shell companies, and complex financial instruments to minimise tax liability. Even when legal, these schemes reduce the effectiveness of the tax and make enforcement challenging.
Enormous enforcement costs – Monitoring, auditing, and litigating wealth tax compliance requires a huge bureaucracy. The cost of enforcement can consume a significant portion of the revenue raised, making the tax less efficient than it appears on paper.
Why wait until wealth becomes extreme — instead of designing the economy so it cannot become extreme in the first place?
What is taxation at the point of production?
Taxation at the point of production applies tax when a good is produced or leaves the factory, farm, refinery or mine — not when income is earned, and not primarily when consumers pay at checkout.
Elements of this already exist:
- excise duties on alcohol, tobacco and fuel
- carbon taxes at extraction
- resource royalties on mining and forestry
PROUT proposes making this the primary tax mechanism, while abolishing income tax entirely.
Zero Tax on Essentials, Higher Tax on Luxuries
The principle is simple and uncompromising: essential goods must be completely tax-free, while luxury and non-essential goods carry progressively higher production taxes. Essentials include staple foods, basic clothing, essential housing materials, medicines, and educational materials. Luxury and non-essential goods, by contrast, are taxed heavily. Importantly, what counts as “essential” or “luxury” is not fixed, it should evolve as society’s quality of life improves, allowing taxation to reflect social priorities rather than arbitrary categories.
How a production tax works in practice:
The tax is levied at the point of production. Producers pay the tax when the product leaves the factory, farm, or refinery. For essential goods, this tax is zero, keeping prices as close as possible to actual production costs. For luxury items, the high production tax is effectively passed on to consumers through higher retail prices. This means those who choose to consume luxury or non-essential items directly bear the cost, funding public goods without relying on income taxes or indirect taxes that hit everyone.
Of course, a robust auditing and tax collection system will be necessary to completely eradicate tax evasion. However, a production tax would be much easier to audit than what we have now.
Example 1: Cooking oil
- Classified as essential
- 0% production tax
- Distributed via consumer cooperatives
- Price reflects real production cost, not revenue extraction
Example 2: A luxury car
- High production tax applied at the factory gate
- No income tax charged to the buyer
- Luxury consumption directly funds public goods
In short, taxation aligns with social impact rather than personal income. Essential items remain affordable and widely accessible, while luxury consumption contributes proportionally to society.
Distribution through cooperatives, not profiteers
In addition, PROUT insists that essential goods be distributed through consumer cooperatives, not private monopolies or speculative middlemen.
This prevents hoarding and artificial scarcity, stabilises prices, guarantees access to essentials, anchors the economy in local needs
Guaranteeing necessities while securing revenue
Would abolishing income tax reduce public revenue?
PROUT argues the opposite:
- production taxes are harder to evade
- luxury goods generate stable revenue
- black money loses its incentive
- compliance improves through simplicity
Combined with cooperative distribution, this supports food security, education, employment guarantees and infrastructure, not through coercion, but through design.
The deeper shift
Taxation at the point of production represents a philosophical shift:
- from policing to prevention
- from redistribution to predistribution
- from chasing wealth to structuring fairness
In a world strained by inequality and distrust, the question is no longer just how much to tax — but where, when and why we tax at all.
On that question, PROUT offers an answer worth taking seriously.