Abstract
In The Netherlands, the high tax burden on employment income cripples the labor market, whilst the highly differentiated, if low, tax burden on capital income distorts the capital market. Building on the experience with dual income taxation in the Nordic countries, a new tax covenant is proposed comprising lower average and marginal tax rates on labor income and a more even-handed treatment of capital income. Specifically, capital income should be taxed at a low, proportional rate. Flanking measures are required to improve the workings of the labor market; notably, social benefits for people who can work as well as housing subsidies should be reduced. More fundamentally, a change in the social order is desirable which places greater weight on equal opportunities instead of equal outcomes.
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