The former environment secretary insisted income tax, stamp duty and inheritance tax were out of control and having a "dampening effect" on wealth creators.
He also suggested public spending could be cut by up to £170 billion – saying the Tories should not shy away from "getting rid of" government departments.
Here are a selection of Mr Paterson's views outlined last night:
On the Conservative Party: "The Conservative Party last won with a proper majority in 1992 with 14.1 million votes under John Major. Even Blair in his landslide only got 13.5 million and in the 2010 election Conservatives were down to 10.7 million.
"Where have the three million gone? They are still out there, but they are not attracted by the Blairite-Clintonite retail politics of focus groups which relegate those on both the right and left of the consensus to 'noises off'.
"I am convinced that the majority of people in the country are small Conservatives at heart, looking for optimistic, common sense policies that deliver results. So if we are straight with the public – about the importance of balancing the books, about the duty on ministers to spend public money wisely and frugally, and about the dynamic effects of low taxation, this puts the country's best interests at the forefront. If we do all that, forget the focus groups, we will take the public with us."
On tax and the economy: "As it is, we are seeing a narrowing of the tax base and, with it, an increased tax burden upon those who we really want to encourage to create wealth.
"The accumulation of income tax, stamp duty and inheritance tax, before even adding VAT, council tax and energy subsidies on a utilities bill have a dampening effect on people. It is time we rediscovered the virtues of low taxation to encourage effort, initiative and enterprise."
On UK 2020: "When we look ahead we can see the UK alongside self-reliant, low cost, entrepreneurial economies, starting with the Anglosphere where the economies of Australia, Canada and New Zealand are flourishing thanks to Conservative governments. And we have close links with the emerging economies of the Commonwealth, the Far East, and parts of Eastern Europe which are all growing faster than our local but important partners in Europe.
On the deficit: "The Coalition Government has slowed the increase in spending. We've also done good things such as reducing corporation tax from 28 per cent to 20 per cent by the end of this Parliament.
"And it is a remarkable achievement that the UK has created 1.8 million jobs, more than the whole of Europe put together. But it is still only a job half done because we have this horrendous deficit."
The comments came in a speech to launch his new think-tank, UK 2020. Mr Paterson – who lost his Cabinet job in the summer reshuffle – said history showed that "if you reduce taxes, you grow the economy".
"As it is, we are seeing a narrowing of the tax base and, with it, an increased tax burden upon those who we really want to encourage to create wealth," he said.
"The accumulation of Income Tax, Stamp Duty and Inheritance tax, before even adding VAT, Council Tax and energy subsidies on a utilities bill have a compounding, dampening effect on people."
Mr Paterson said headline tax rates did not give the whole picture, as they did not include national insurance payments.
And he pointed out that while only one in 20 people paid the 40 per cent higher rate in 1980, the proportion earning over the threshold of £41,450 now was more like one in six. Four fifths of homes are also being caught by stamp duty, and the charge is much higher than previously. "It is high time we rediscovered the virtues of low taxation," Mr Paterson said. "Low taxes encourage effort, initiative and enterprise.
"They reward society's wealth creators and risk takers, the people who create jobs and build the prosperity. We should start with a significant uplift in the threshold for paying 40 per cent income tax to send a signal that those who work hard and achieve success will be rewarded, not penalised."
Mr Paterson said the "brutal fact" was that no British government over the last 40 years had managed to raise more than 39 per cent of national income in tax. All spending beyond that had to be borrowed, and even though the coalition had cut the deficit the Government was still borrowing £200,000 a minute.
The UK 2020 group is set to become an influential lobby group within the Conservatives, reflecting the views of many within the party. It will also have a role to play in the run up to next May's election – in which the Tories face the threat of Ukip.