Originally posted by no1marauder
Capital gains on passive income yields little societal benefit. A tax system, like ours, which favors passive income over work has perverse incentives.
EDIT: It appears the IRS definition on "passive income" differs from the one I learned. To be clear, I include what the IRS calls "portfolio income" in "passive income". I find it bizarre and counterproductive that capital gain and dividend income is taxed at lower levels than work.
"I find it bizarre and counterproductive that capital gain and dividend income is taxed at lower levels than work."
Investment income, dividends and other either passive or portfolio income do differ from work in several ways.
1. They always involve the risk of losing the invested wealth.
2. The capital invested is often saved from money earned working, and therefore already taxed at a higher rate.
3. The "perverse incentives" include getting people to place their wealth at risk, which they tend to do less of when rates are higher.
4. The alternatives to investing, is to spend on enjoyments. That is frowned on by leftists, and led to the near destruction of the Yacht building business, and threatens civil aviation.
5. Accumulated wealth has been taxed, and belongs to the wealthy. How they use it is probably best left to their better judgement, than to give it Congress that has demonstrably poor money management skills.
The first is the most important difference between wage and investment income. Wages aren't subject to many, if any risks. Many workers today enjoy some benefits of investors, while still getting hourly wages or salary.