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_Earned_ income should correspond to productivity. But unearned income enjoys a dramatically lower tax rate (the capital gains rate is lower than income rate,

_Earned_ income should correspond to productivity. But unearned income enjoys a dramatically lower tax rate (the capital gains rate is lower than income rate, and capital gains are not subject to FICA/self-employment taxes)

AnthonyMouse 2y ago
The capital gains rate is lower because the way capital gains are calculated causes nominal price increases due to inflation to be counted as an increase in the value of the asset. This is a pretty dumb way to do this -- just calculate the capital gain in inflation-adjusted dollars instead -- but the current system isn't inherently to the advantage of capital gains. For long-held low-risk assets it typically goes the other way because so much of the "gain" is only on paper but gets taxed anyway. And short-term capital gains are taxed at a higher rate.
pdonis 2y ago
What you are calling "unearned income" can still represent production indirectly, since it is income from passive investments, which are supposed to give returns based on creating wealth. It is true that that isn't always the case, however, particularly when such investments can include various sorts of derivatives and other zero-sum transactions. That said, if no income were taxed at all, any disparity between how the various kinds of income were taxed would go away.
- mattgrice 2y ago
  That seems a very elegant solution to the problem of fair income taxes. Just don't tax income, that way you can't have a disparity in income tax. What should we tax instead? Capital seems to me a viable choice. It would be a lot more work for everyone, though.
  - pdonis 2y ago
    > What should we tax instead? My proposal (in the GP of the post you responded to) was to tax consumption, i.e., a national sales tax or something like it. > Capital seems to me a viable choice. What would count as "capital"? Whatever the answer is, this would seem to me to have the same issue as income taxes have: you would be taxing production instead of consumption, hence lowering the incentive to produce.
- triceratops 2y ago
  > What you are calling "unearned income" It's not an ideological framing. The IRS calls it that.

AnthonyMouse 2y ago

The capital gains rate is lower because the way capital gains are calculated causes nominal price increases due to inflation to be counted as an increase in the value of the asset. This is a pretty dumb way to do this -- just calculate the capital gain in inflation-adjusted dollars instead -- but the current system isn't inherently to the advantage of capital gains. For long-held low-risk assets it typically goes the other way because so much of the "gain" is only on paper but gets taxed anyway. And short-term capital gains are taxed at a higher rate.

pdonis 2y ago

What you are calling "unearned income" can still represent production indirectly, since it is income from passive investments, which are supposed to give returns based on creating wealth. It is true that that isn't always the case, however, particularly when such investments can include various sorts of derivatives and other zero-sum transactions. That said, if no income were taxed at all, any disparity between how the various kinds of income were taxed would go away.

mattgrice 2y ago
That seems a very elegant solution to the problem of fair income taxes. Just don't tax income, that way you can't have a disparity in income tax. What should we tax instead? Capital seems to me a viable choice. It would be a lot more work for everyone, though.
- pdonis 2y ago
  > What should we tax instead? My proposal (in the GP of the post you responded to) was to tax consumption, i.e., a national sales tax or something like it. > Capital seems to me a viable choice. What would count as "capital"? Whatever the answer is, this would seem to me to have the same issue as income taxes have: you would be taxing production instead of consumption, hence lowering the incentive to produce.
triceratops 2y ago
> What you are calling "unearned income" It's not an ideological framing. The IRS calls it that.