i.e if I earn $100 by working at a job, and $100 through renting out a property, shouldn't I be taxed the same as if I earn $200 through my job instead?
I'm actually really curious about the law now. Stock dividends must be considered passive income. So would interest from your local bank savings account. So would a SaaS app that you set up and basically runs itself with minimal maintenance.
The bigger part of the problem is the tendency to pass on the tax on passive income to the tenant.
They'll offload it to a property manager/real estate agent to do all that work.
Even if you were to take the unwise, for both legal and tax reason, choice to not use a hold co, income from rent is FUNDAMENTALLY different from regular income. In that, if you make a loss, you can claim it. That's just not possible with regular income. I.e., if you rental unit is unprofitable, it reduces your taxes in general -- potentially applied in future years. This is not the with "active" income.