The return on capital is always greater than the return on labor. Piketty does a great data driven analysis on this in his book Capital in the 21st century. This phenomenon was occurring long before the US was even a glimmer.
I've never understood why the capital gains tax is lower than the labor tax. The labor tax is theoretically adding value to the economy while capital gains is basically money you made because you had money. It seems to me it should be the opposite if you want a productive economy, encourage more people to put their money to work instead of playing games in the market.
> The labor tax is theoretically adding value to the economy while capital gains is basically money you made because you had money.
Capital adds value to the economy too, thats why people will pay to rent it.
> I've never understood why the capital gains tax is lower than the labor tax.
One good reason is that if the capital gains tax is higher than the marginal profit, then that business doesn’t exist. If we taxed capital at the rate that we tax labor, there would be one or two ultra-hyper-wealthy people who employed everyone, and the rest of us would be serfs working for bezos or the government, or on public assistance.
> It seems to me it should be the opposite if you want a productive economy, encourage more people to put their money to work instead of playing games in the market.
Investing your money is putting it to work, that is precisely why it earns a return.
It's not because "you had money" simply having money results in 0 taxes. The capital gain comes when you lend your money to some other entity and they use the money to do work: produce a good, provide a service. Although there is a sect in the US government that wants to tax your money simply because you have it.
