Comment by ajross
5 days ago
Only short term gains are taxed as income. Long term capital gains tax caps at 20%, wildly lower than the top income tax bracket of 37%. And it's always possible to defer short term gains (e.g. put your trading money in an IRA).
IRA contributions are drastically limited to a $7000 cap per year under 50. Whether they should be is another question, and one worth exploring.
Long-term investment is rightly seen as something to be encouraged hence the lower tax rates. You can make the argument that the rate should be more like 0% since the money invested and risked was already taxed most likely...20% is a reasonable value for the market regulating infrastructure provided by gov't entities.
IRA caps are low, but loads of people earning enough that they'd reasonably save more than 7k annually have access to 401ks or similar accounts that raise the annual cap to >30k, vastly more than the typical person is saving.
The middle class isn't taking advantage of low capital gains rates to earn more from their taxable brokerage accounts because they haven't even filled up their tax-advantaged accounts.
There are loopholes to roll all sorts of nonsense into an IRA though. There was a whole news cycle in the 2012 election about Mitt Romney's $4M "IRA" or somesuch. And IRAs are hardly the only shelter from income tax, they're just the most obvious.
The simple truth is that wealth beyond the ~$10M level in the US pays essentially zero "income tax". It just doesn't happen, no one does it. Short term gains are only taxed for small investors who don't know any better.
According to Google:
"Entrepreneur Elon Musk announced on social networks that this year he will pay 11 billion dollars, thus becoming the largest taxpayer in the history of the USA."
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