[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.

[schoen]

> We all get the same services from the state.

I agree with your intuition, but this is often contested based on the idea that one of the state's services is protecting property, which scales up in cost in some way with the amount of property.

For example, if you have a 10-story building, the cost of protecting it against fire is greater than the cost of protecting a small shack against fire (the kinds of fires it can be involved in and the means of accessing it to fight them are greater).

Or, if you have valuable jewels, the cost of protecting them against theft is greater than the cost of protecting a few items of clothing (more sophisticated attackers like organized crime and otherwise professional criminals may try to steal them using more sophisticated means and resources).

Or, if you own corporations, the cost of protecting your ownership interest against fraudulent transfers may be greater than the cost of protecting someone's ownership interest in a house against such fraud, again because of more sophisticated attackers and also because the rules permitting transfers of the corporate ownership interest may be more complex to formulate and apply.

However, it's likely that the cost of protecting most kinds of property scales sublinearly with the economic value of the property rather than superlinearly, so if people were merely being charged for the increased cost of actually providing them state services that they use or directly benefit from, this would still not justify tax rates increasing with wealth or with income.

[smallmancontrov]

$0.5B in taxes on $200B/yr in capital gains, for a tax rate of 0.25%

I wish I could pay taxes at a rate of 0.25%! What tax rate did you pay last year?

[YZF]

I didn't pay any capital gains on stock I did not sell.