[YZF]

So if I'm a brick layer and I decide to innovate and build a machine that can lay bricks faster and cheaper, and I hire people to help me do that, suddenly I've not actually earned anything? If I'm a farmer and I use a horse and a plow to plow my field instead of with my bare hands then I've not earned anything? Putting your capital towards these things is absolutely "earning" and the modern economy is just a generalization of that which enables capital and need to find each other more readily.

We should all go back to being hunter-gatherers? Or how do you propose this is going to work?

[collingreen]

You gave examples of creating and inventing things and employing and leading people. Those are value creation.

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.

[tjwebbnorfolk]

Capital doesn't just magically increase for no reason. It increases to the degree the business produces more value for its customers. Most business fail to do this, which is why most companies fail. Other succeed, and attract investors who want to put more capital into the business to help it grow more.

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.

[YZF]

Clearly my example didn't resonate but in my mind there is no difference between me using my capital in my business and me using my capital in other people's business. A passive index investment is me using my capital in the broader economy. So I am a bricklayer. I take my capital. I give it someone to design a brick laying machine. Or I am a bricklayer. I take my capital. I invest in the S&P 500. When I have the brick laying design I go to someone with more money and negotiate them funding my brick laying machine company. Those are all capital gains. Where is that imaginary line? pg specifically talked about startup founders.

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.

[smallmancontrov]

> capital gains, or interest, are "earned"

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?

[YZF]

I am almost certain (not sure how we can check) that Elon is paying a lot more taxes than the average person. He doesn't get more services for that money. The top 1% income earners pay something like 50% of the total individual's taxes + their companies pay a lot of taxes. He's basically subsidizing any service you're getting from the government.

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.

[smallmancontrov]

Elon has about 10 million times the wealth of the median American, with expected passive income well over a million times that of the median American. He'll pay tax on almost none of it, as a fraction. But probably more than 1/1,000,000th, so it's ok? That's your argument?

[YZF]

Why should someone richer pay more tax? We all get the same services from the state. So in practice he's probably paying x100 the median but you're saying he should pay x10,000,000. If you include the taxes his companies are paying then it's probably more like x5,000. It's not a given at all why he should be paying that much in the first place. And in fact, it didn't even used to be like that. Capital gains tax is a relatively new concept and even income tax isn't that old.

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.

[stevenhuang]

> That's really different

It's really not. I don't think you understand the role capital plays in our economy, like at all.