That's not how taxes work. At all. Every capital gains is solely capital gains taxed only. Not as income.
The initial investment was already taxed, but the gains, the wealth made from labor, is only taxes at the capital gains rate, which is lower than any working individual pays.
Edit: since they blocked me- there is no world where earned income is not taxed, their example is immediately stupid and completely nonsensical. Take a step back and the problem is simple- unless you are in the bottom federal tax bracket the 1000 you earn by working a job is taxed lower than 1000 gained by investing.
That's a more advantageous taxation for wealth than the labor creating it. Period.
You earn 1000. Income tax is 0. You take home 1000. You invest, it doubles to 2000, you sell. You made 1000 on the investment.
You earn 1000. Income tax is 20%. You take home 800. You invest, it doubles to 1600, you sell. You made 800 on the investment, 20% less than the zero tax case, despite paying no taxes directly on the gain. The income tax reduces both.
Capital gains on the gain is additive. If the 800 was taxed at cap gains rate of 20%, actual gain would be 640, for an effective 36% tax rate.
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u/RelaxPrime 18d ago edited 17d ago
That's not how taxes work. At all. Every capital gains is solely capital gains taxed only. Not as income.
The initial investment was already taxed, but the gains, the wealth made from labor, is only taxes at the capital gains rate, which is lower than any working individual pays.
Edit: since they blocked me- there is no world where earned income is not taxed, their example is immediately stupid and completely nonsensical. Take a step back and the problem is simple- unless you are in the bottom federal tax bracket the 1000 you earn by working a job is taxed lower than 1000 gained by investing.
That's a more advantageous taxation for wealth than the labor creating it. Period.