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Except that's not really how it works. If you reinvest your $500,000 income into stocks and they make a profit, you're getting taxed on the extra profit, since
by anthonyb 16y ago
Except that's not really how it works. If you reinvest your $500,000 income into stocks and they make a profit, you're getting taxed on the extra profit, since you're actually earning in excess of the original $500,000.
- jquery 16y agoYou're right, the multiplier effect doesn't apply if you simply park your money. It will affect you indirectly, however, if you assume that it lowers your expected rate of return (fewer transactions in the free market = fewer opportunities for profit). It also increases the profit you must make to simply break even over inflation. For example, if inflation halves the value of $500,000 over twenty years, the IRS will still consider your $500,001th dollar "profit," even though you aren't making any real profit until your $1,000,001th dollar.