Someone who lays bricks, "earns" their income; someone who's wealth increases as a bricklaying company's value increases, does not.
In this sense, it is indeed impossible to "earn" a billion dollars...
We should all go back to being hunter-gatherers? Or how do you propose this is going to work?
I don't think I fully agree with it, but OPs point wasn't about any of that and instead said capital gains (and clarified further - fungible, uninvolved capital without any other contribution). That's really different. If you want to attack that maybe use an example of passive index investors or pension funds allocating capital to a vc.
Capitalism isn't perfect but it's the best system we have. We need to educate people better about how it works and we need to regulate it so it's not abused. But capital gains, or interest, are "earned". They are also taxed, and when those taxes are used for the right goals by the government, result in improving things for everyone.
According to the IRS, "unearned income" is money received from sources other than employment, such as interest, dividends, rental income, and pensions.
We tax it at a vastly lower rate than ordinary income, and we tax it not at all for the purposes of exponential compounding, which is the application in which it is most problematic. What fraction of Elon's capital gains do you think have ever been realized?
We tax capital gains less because we want people to invest their money in companies. As I said, we can debate the tax rates, some might argue we should lower the tax on capital gains (double taxation?) some might argue we should raise it. We should absolutely have an evidence based rational discussion on these topics.
There's a good podcast about the evolution of US income tax: https://99percentinvisible.org/episode/624-tax/
EDIT: So supposedly in 2021 Musk paid $12B in taxes (which was an anomaly) and in most years he pays around 455 million federal taxes. There was one year where he took no income and paid no taxes. So the average American probably pays ~10K I would imagine.
I agree with your intuition, but this is often contested based on the idea that one of the state's services is protecting property, which scales up in cost in some way with the amount of property.
For example, if you have a 10-story building, the cost of protecting it against fire is greater than the cost of protecting a small shack against fire (the kinds of fires it can be involved in and the means of accessing it to fight them are greater).
Or, if you have valuable jewels, the cost of protecting them against theft is greater than the cost of protecting a few items of clothing (more sophisticated attackers like organized crime and otherwise professional criminals may try to steal them using more sophisticated means and resources).
Or, if you own corporations, the cost of protecting your ownership interest against fraudulent transfers may be greater than the cost of protecting someone's ownership interest in a house against such fraud, again because of more sophisticated attackers and also because the rules permitting transfers of the corporate ownership interest may be more complex to formulate and apply.
However, it's likely that the cost of protecting most kinds of property scales sublinearly with the economic value of the property rather than superlinearly, so if people were merely being charged for the increased cost of actually providing them state services that they use or directly benefit from, this would still not justify tax rates increasing with wealth or with income.
I wish I could pay taxes at a rate of 0.25%! What tax rate did you pay last year?
Starting a company that becomes worth $1M by creating $1M in value is a literally a capital gain of $1M for whoever owns that business.
Maybe the person who started that business wants to sell. 10 people buy $100k each in shares. Now they own the business. They hire a manager to grow the business and expand and create more value. Now the business is worth $2M. Those new investors created another $1M in value by hiring the right manager and making good decisions. This is another capital gain.
None of this is accidental or magical. Businesses that do well produce capital gains, and most businesses fail, and produce no capital gians.
It's really not. I don't think you understand the role capital plays in our economy, like at all.
How does this follow? Is the management effort in organising a brick laying company not count as work? Does the RND effort of a bricklaying company not count as work?
I would have used housing speculation as my example tbh.
The house is the capital. Bricks are an intermediate good.
The point is, the bricks do not materialize out of thin air. The act of laying the bricks is not the only labor or capital involved in laying bricks.
The parent post is not saying that some forms of shareholding do not earn, but they are excluding any form of owning a bricklaying firm is definitively not earning. So any arrangement that involves owning a bricklaying firm is within scope. Sole Trader or Partnership for instance.
No, we can't say that at all, because most businesses are small businesses, owned by the people who run them, and capital gains are the owners' income from running the business.
The money startup founders make, from building something as PG describes, is also capital gains. So again, no, we can't say at all that capital gains are unearned.
Yes, we can say this. The IRS classifies capital gains as unearned income.
In fact, in some countries not paying yourself a fair-market-value salary is illegal!
Maybe not zero, but PG's "ramen profitable" basically means the only "salary" the founders take is enough to cover their living expenses, which are kept minimal. So the vast majority of the money they make (remember we're talking about a billion dollars here) is capital gains, not salary.
Of course CEOs of large established companies (not startups) take large salaries--and then usually get stock options and own a considerable amount of company stock, so they get compensated three different ways. Which arguably gets into "unearned" territory--but at that point the company is way past being a startup.
> especially not with small companies which aren't publicly traded
Privately owned companies can still be sold, and the profits from the sale are capital gains. But I agree that in this case that's not the primary way the owners of, say, a mom and pop restaurant get compensation. I should have been more specific that I was talking about startups.
I really wish people weren't so easily seduced by the labor theory of value.
Your labor alone without materials, without tools, or a farm, or a factory, is just you flailing your arms in the air and producing nothing. Capital is as valuable an input to production as labor. You cannot have one without the other.
It's so funny to see people on HN who have clearly overdosed on Marx but have never read Das Kapital, where even the man himself acknowledges the critical role capital plays in production.
A lot of comments seem to not assume that ownership is equivalent to 'earning'. Why does capital need to pretend their wealth growth is equivalent to the effort of labour.
People are more productive when they have tractors and seed and fertilizer and all the other requisite capital inputs for growing apples. In fact, one can hardly think of anything productive one can do with zero capital inputs.
You do not live on an island. There is trillions of dollars worth of both capital and labor at work underneath your every waking moment that supports your life. Your level of effort means nothing to anybody.