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It also has to do with economic policy. If labour income is taxed at 50% and capital gains at 25%, then investment income will obviously grow faster, because 1)

It also has to do with economic policy. If labour income is taxed at 50% and capital gains at 25%, then investment income will obviously grow faster, because 1) capital gains taxes can be deferred until a stock is liquidated, and 2) they're taxed lower. An investor making $10,000 will keep $7,500 vs an employee, who will keep $5,000. Add to that the massive QE programs over the last few years, where some investors have easily tripled / quadrupled (or more) their capital, and it's easy to see how this is happening.

yummyfajitas 10y ago
You are comparing money at two different times, which is invalid. Assume an income tax rate of X%, cap gains tax rate of Y%, and a rate of return R. Consider a spender. In year 0 he earns 1 dollar, he pays X% in cap gains and spends the rest. In total he paid X year 0 dollars. Consider a saver. In year 0 he earns 1 dollar, he pays X% in cap gains and invests the rest. 1 year later he is holding (1-X)(1+R), which he cashes out of. He then pays Y[(1-X)(1+R)-(1-X)] in taxes. In total, he has paid X+Y[(1-X)(1+R)-(1-X)]/(1+R) in year 0 dollars in taxes. The latter is always greater than the former. Lets expand your example. Suppose the rate of return is 100%. The spender received $10,000 at time 1 and paid $5,000 in year 1 dollars. 50% tax rate. In contrast, the saver received $20,000 at time 0 and paid $10,000 in taxes. Then they invested the remainder, and at time 1 received an additional $10,000. He then paid $2,500 on that. In year 1 dollars, he paid $20,000 ($10,000 year 0 dollars == $20,000 year 1 dollars) in income taxes + $2,500 in cap gains. That's a total tax rate of 56.25%.