idle_zealot parent
It's called a progressive tax, and it's a great idea.
If taxing something discourages it, we should instead create a "failure tax", which you only pay if you don't make very much money, to discourage failure.
In that case, have a tax on tax, where the government takes 100% of it's own tax receipts, which should logically lead to no taxation at all, right? :p
There are taxes on tax too, its called “cess”, a lot of countries have that too -_- , so you pay taxes, and then there is an extra tax on the tax collected too.
A profit tax doesn't discourage increasing profit as long as the marginal gain is positive.