This isn't based on economic theory or anything, it's just a political choice we have made as a country. We've chosen to reward those who move money around and trade capital more than we reward those who labor. And this at a time when, supposedly, the country is trying to increase its ability to build things.
I thought this specific fact worth mentioning.
The people in power do not want to lose control, but clearly have no idea how to manage the scale of what has been built. There's an American leadership crisis going on right now that is hard to ignore, both in public and private life.
Normal people are not represented in congress, because politicians are not normal people, but if we chose people by lottery we would have a branch of congress filled with normal people. They would have time enough to study the issues. Some of them would be stupid, but this is no worse than the current crop of politicians.
https://en.wikipedia.org/wiki/Sortition
I believe that this was one of the great mistakes by our founders. I'm sure that many suggested it, but unfortunately their ideas were suppressed due to our roots in slavery, colonialism and aristocracy (meritocracy today).
That’s violent enough even if you don’t consider the fact that de facto martial law is about to descend on major cities all over the country in the next few weeks. I’m doubtful that Greeks were anywhere near as volatile or violent as Americans are today.
To make the tax incidence on wages and capital gains equivalent, you must first deduct losses due to inflation and risk. For wages, inflation and risk round to zero. For long-term capital gains inflation and risk are large and often the majority of the "gain". Short-term capital gains are already taxed like wages.
In the US, unlike some other developed countries, there is a very limited ability to deduct losses due to inflation and risk from long-term capital gains. Consequently, if they made the tax rate the same as wages then the tax incidence on capital gains would be much higher than wages.
As a policy matter in the US, they fix this large difference in tax incidence by reducing the tax rate instead of adjusting the cost basis for inflation and allowing full deductibility of losses.
If you pencil out the implications of these two policies, I suspect you'd find that you like the way the US does it better. Making risk and inflation deductible to equalize tax incidence enables a lot of financial structuring.
A horseshoe shaped tax graph by income is clearly against the intent and spirit of a progressive tax code so something is very much broken and has been so for decades.
Around 40% of stocks are in retirement accounts.
That said, I do recognize that mitigating this is really hard without introducing even more complexity to the tax code, which has its own cost.
Wages have no risk when you receive them. It is cash on the barrel. The only risk is counter-party such as your employer going bankrupt before you receive your paycheck. Not zero but statistically very low. Any inflation that happens after receiving wages is on the individual to the extent no one requires them to eat that inflation. (This is an issue during hyperinflation but the is very far from that.)
It was to point out, that giving asset sales an insurance break, or risk break, would only makes sense if we gave working people gapped-income and risk breaks.
Which is to say, that neither makes sense.
The way I would put it is, money inflates if you simply hold it, but it has time value almost always greater than inflation. If you don't at least do that, you are choosing to waste value.
So giving a tax break for inflation would be giving people a break on losses, that capitalism already accounts for. Such as naturally higher interest rates when inflation is higher.
(Yes return on asset balancing mechanisms are not perfect in time, but as noted, neither is employment.)
Whether or not your wages increase with inflation is an unrelated discussion.
As for risk, if you buy something, then you go bankrupt so you lose it all, the state doesn't pay you the negative capital gains tax from your losses. That is the risk part that workers never have to deal with, there is no such thing as negative salary but negative capital gains happens all the time. You can't cancel out those losses if you didn't make profits elsewhere.
In terms of real, relative risk, being a laborer is much more risky than being an investor.
The investor may lose hundreds of millions, but it doesn't matter. The laborer may lose 500 dollars after being fired, and it could kill them.
We've detached risk from real risk. Real risk is - will I eat, will I survive.
We are talking money here, we tax money so we talk about how money is risked.
We don't tax your health or wellbeing, it is true that those are serious risks worse than monetary risk, but it isn't something the tax office should deal with so it isn't a part of this conversation.
Inflation should be low and we should make it in the interests of the rich that it stays so.
The prevailing opinion of a lot of progressive economists is just the opposite: standard policy for 40 years post-Volcker was to run with low inflation, loose money and slack labor markets, and probably all this did was keep wage growth depressed.
The brief inflationary period in 2022-2023 was fantastic for low-income workers, it was the only serious growth in real wages they'd seen in a half-century. But voters revolted and probably guaranteed we'll go back to the low inflation, high unemployment policy for another generation at least.
My opinion is that inflation is generally a bad idea but the thing that really matters is inflation volatility. The market will adjust for whatever the inflation rate is (unless its extreme) but volatility just results in loss.
[1] - https://michael-hudson.com/2020/12/jubillee-perspectives-wit...
Seems like return is roughly proportional to risk(1-tax)investment so changing tax should affect everything proportionally (barring cheating/avoiding the system in some way).
2. Long term investors invest in things that great new jobs, it is not just moving capital around.
Any data on that?
What a joke. Everyone can judge for themselves if 1 year is "long term".
Is it? I've heard that low capital gain taxes are better for long-term GDP growth.