Say, Kate is a CEO of a Bank/Insurance company/ Software company or a Stock exchange broking company.
She earns 28 million per year, as salary. Her first incentive to work, is this pay from the employer. She earns about 750 times of average earning of Joe (say Joe earns $37,000). In one year she is ahead of Joe financially by 750 years.
Secondly the Tax rate system makes her to sacrifice only about 44.11%. The rest of the money is huge in her hands to spend on.
Kate invests this in properties and claims deduction for the interest paid, makes her properties less expensive (as her marginal tax rate is higher, so effectively she paid interest at simple interest rate). If Joe bought the same property, it would be much expensive for him, as compared to Kate, due to marginal tax rate differences. (This is dealt with in Tax pages of this site)
Kate’s consumption of anything will not be affected just because of consumption tax (GST/VAT/Sales tax).
Rather Kate would use 'Fringe benefit' tax system to get all her personal needs in abundance. Her employer will get back these consumption taxes as refund on her consumption.
So consumption tax is a pain only for middle income and low income group.
So imposing consumption tax as a measure of controlling consumption is like, “setting fire to roof to get rid of rats”
Inflation:
It is a condition where disposable income in the household is much more than goods and services available for that money.
Money value decreases, market price for goods and services increases.
Demand is more, supply is less and price level increases.
In our example Kate or Tony have much more money in their hands that is not proportionate to their contribution to the society in goods and services.
Banks, Insurance companies and Stock exchanges earn their profits disproportionate to their contribution of goods and services to the economy.
They cause inflation!
Income tax is a system to check inflation, but as described in this site, it helps increase inflation!
Banks compounding interest is inflating the money without proportionate contribution in goods and services, causing inflation.
British Monarchy won India not by war or bloodshed, but by clever trade agreement with the Kings in different provinces in India.
East India company, formed then by Royal charter came to India to trade. They agreed with the Kings in each province that East India Company will invest their own money and resources personnel, employ local people for various jobs, sell their products in India and they should be allowed to take the profits and their investments whenever they deem fit.
Unsuspecting anything wrong in this, the Kings allowed. As the Kings believed, East India Company brings its own capital that can be taken back anytime. They will do manufacturing and selling in India. That will give opportunity for jobs in India. The profits they make is theirs so they can take it to England.
The catch in the agreement was; when East India Company wants to leave India, the Kings should give East India Company's profits (earned in Indian currency) in Gold and Silver, in exchange for all the Indian Currency (rupees) they have earned & brought.
Over a period of time, for the amount of profits earned, the Kings did not have sufficient Gold and Silver to exchange. Hence they were made slaves.
This is the way each province was taken by Britain.
Such is the depth of problem in the Company Structures.
Now we have the same Public Limited company structure, that is able to use the investment from low and middle income population in the form of Shares.
The management is able to 'control' the capital and business and make themselves richer.
The tax system helps this.