It's not necessarily limited to the ultra wealthy, but outside of a few key areas (as someone mentions, those profiting off of the inflationary spike, those in the real estate market, etc) it is more or less the case, yes.
im going to be controversial and say no one should have anything other than labor as their main income until they retire.
anything you can do thats useful to society counts as labor (but not vice versa, you can work as a robber or corporate lobbyist). from line cooks to wall street ceos to open source volunteers and stay at home moms who dont get paid but still work. landlords and executives count because management is labor too.
if your income comes from a trust fund or owning properties that you dont manage thats a passive reward for doing nothing. you are not productive. you are a parasite living on the back of everyone else and expecting indefinite rewards for a fixed amount of work you or your parents did years ago.
So if you buy a lawnmower and use it for your business to cut your neighbor's grass (instead of tearing it apart by hand), that should be illegal? You've used a capital investment to increase your productivity. Your productivity gains have driven anyone using a less efficient method out of the market.
What if it's a robot lawnmower instead of a push mower?
What if you and your neighbors pooled in some money to buy the robot lawnmowers?
I think they could have worded it better. I think they were saying that profiting from the labor of others is unethical. Using robots isn't unethical because you're not profiting from something that needs the income for itself. And it isn't really "working". Working requires expenditure of limited time and resources, which robots either of unlimited of, or is provided by the owner.
What if you dump toxic waste into a river to make money, but volunteer 30-40 hours a week? Does it make the dumping less unethical? The point isn't about doing labor, it's about not profiting off of other's labor or rent-seeking.
Rent-seeking is different from being a landlord. And I mean that in a "dictionary definition" way - they are literally different concepts.
And we all "profit off of others' labor" when we buy things.
I was responding to the person who said "anything you can do thats useful to society counts as labor". According to them only retired people are allowed to live off investment income. But what if the thing someone labors at doesn't make them income, and they support themselves with investment income? They've satisfied OP's "be useful to society" dictum, so why is it so immoral for them to be a landlord.
Rent-seeking can be explained in a few different ways, but one of them is "extracting value without creating much new value" which is exactly what a lot of landlords do. Buy a house, rent it for more than the mortgage, and do as little work as possible in the process. This the renting experience for (I'd guess) 95% of people.
If someone buys housing primarily because they have access to capital and credit that renters do not, then charges more than the carrying cost while minimizing maintenance and labor, they are extracting value from ownership of a scarce necessity. The value they capture comes less from producing something new and more from controlling access to housing. This is rent-seeking.
It doesn't mean all landlords are rent seeking, but it's not accurate to say the two have nothing to do two each other, and that it isn't the net effect or intention in almost all cases.
"And we all "profit off of others' labor" when we buy things."
How exactly do I generate a profit when I buy a hairbrush? That's not how profit works. That hairbrush would presumably cost the same to me whether the profits of the company that made it to the owner or the laborer. Between me and the retailer there is a fair exchange of value. Between the laborer and factory owner who made the hairbrush there isn't when he sells the hairbrush at a profit and that profit doesn't return to the laborer. He is extracting the full value of that labor for himself while having done no work in making that hairbrush.
Also let's say buying a hairbrush was unethical - that's why the adage goes that there's no ethical consumption under capitalism. But we don't deserve to die or suffer because we're forced into it.
"According to them only retired people are allowed to live off investment income."
That's not what they're saying. They said "no one should have anything other than labor as their main income until they retire" - which could have probably been better worded as "the income you make in your life should come from your labor, not the labor of others".
> no one should have anything other than labor as their main income until they retire
No one should start a business and pay salaries to their employees instead of themselves?
What if I see that a biotech startup is working on mRNA cancer vaccines, and I want to invest in that? And then it pays off and I make money off of it?
They're saying you should be compensated and make income for the time it took you to form the business and hire employees. You shouldn't (in their theory) then continue to earn income off the labor of the people you hired - the income they generate from their labor belongs to the laborer. You can also continue to make a salary from the business in exchange for the direct labor you do - management, accounting, whatever else. But if you stop working for 5 years and retire to a beach, you shouldn't be extracting continued income from the workers while you do nothing.
Investing as people think about it only exists because people who invest expect value from the thing they invest in. That value only exists because of a mixture of current and future expected income from the business. If the business itself doesn't generate income for people who aren't doing the actual labor, there's no reason to invest unless you have a personal interest in the continuation of the business, i.e. you're an employee whose income depends on that job. In this scenario you'd have employee-owned businesses.
Obviously this raises the question of where funding comes for new innovation and growth (public investment banks, worker cooperative financing, government grants), but then it goes down a rabbit hole about alternatives to capitalism.
Not American here. I know a couple of people who took out a second mortgage to buy a small appartement to rent out when mortgages rates were at 1%. They probably have €300k in equity in both the primary and secondary home. And around €600 in income from the rental. I do not consider that wealthy.
I would describe that as having invested in an appreciating asset (like stocks), and their main income comes from the gains of the property prices as they go up in value. Moreover, they leveraged themselves via loans to acquire income even faster.
These gains might be realized at any point if they're willing to pay taxes for them.
Having lots of money but choosing not to spend it doesn't make you any less wealthy.
The annoying/sad/infuriating thing is the ultra wealthy don’t have “income.” Technically, according to IRS rules, much of what they experience (housing, food, etc) should be classified as income. But their lawyers and accountants help them keep that looking quite low.
This report is only about wages, so even if the ultra-wealthy reported their real sources of income, they wouldn’t shut up as “labor” the way this defines it.
Capital gains not being considered earned income is simply sensible use of terminology to categorize different ways of amassing purchasing power. For example, in order to carry out the linked analysis.
I used to think this - but when I talked to a tax lawyer friend and we walked through the steps they take, usually they're just deferring taxation that does end up getting paid by an entity eventually.
Not the commenter you replied to, but one thing to note is that capital gains tax (at least in the context of investments in corporate equities) is applied after corporate taxes. Profits and reinvested earnings are taxed as profits, and they're two of the key components to valuing an equity.
As such, when comparing income tax and capital gains, you should add the impact of corporate taxes. Incidentally, corporate taxes are why many small business owners pay themselves wage income, rather than doing stock buybacks or dividends.
> Incidentally, corporate taxes are why many small business owners pay themselves wage income, rather than doing stock buybacks or dividends.
You've been sold some BS. Usually this is because you're required to take a "reasonable" wage for your role in a company. Otherwise I guarantee you every independent contractor out there (among others) would be operating in a way that made 100% of their income business profit, rather than wages, as it has enormous tax advantages. Approximately everybody tries to find out the least they can take as wage income without pissing off the IRS, and sets their "wage" to whatever that is.
Many locales have laws that do not allow remuneration above the 'reasonable wage', to prevent tax circumvention by having employers spread wage payments across multiple family members of employees, but I am not familiar with any jurisdiction with a minimum reasonable wage law or regulation. Could you please link some source for the claim that business owners are required to accept a 'reasonable wage'?
This would be my personal preference, as I believe that voters often overlook the impact of corporate taxes, and there are just too many (different) taxes.
If the income was earned through dividends, maybe this would be a reasonable argument. Most of the time stock just gets bought and sold by investors rather than the company itself though, so it's not clear why corporate tax would have anything to do with this.
Sure, the stock price should somehow be tied to the actual value of the company, but for a while now it's been mostly indistinguishable from a Ponzi scheme other than a few companies that do sometimes decide to buy back some stock, which makes it slightly less sketchy but if the value is from the company buying it back, it's a lot closer to debt or a bond, which is not at all how anyone treats it.
I agree that in a bull market, many corporations are not purchased and sold at book value. That said, we are on the largest bull-run in history, so we shouldn’t treat this as the norm, and base all our long-term decisions on the current situation.
I am not saying that one party paying taxes means that no counter-party should. I am just saying that the impact of different structures should be accounted for.
If they donate the wealth to their own foundation to continue to hold close and control, it doesn't get taxed. If they borrow against the wealth at low interest rates until they die and the basis is stepped up ("buy, borrow, die"), it doesn't get taxed. Certainly, deferment is a component, but there are obvious examples of the very wealthy operating in a manner to avoid taxes entirely when they're able to (realizing the benefit of the wealth without having to realize a taxable event). Trust stacking is a recent fad as well, although I don't have enough data to say whether it is a material concern from a tax revenue perspective.
The cases you're talking about are all delaying taxation, not eliminating it. Eventually someone has to draw that wealth - the foundation has to spend for public benefit to be eligible for 501(c)3 status, for instance.
I also don't think they addressed how borrowing against the wealth doesn't require any immediate taxes (and is often low interest, given how being a billionare means you get more favorable terms). There's nothing stopping someone in that position from just deferring taxes on the money they currently have, borrowing against it, and then investing that to turn into more money with taxes deferred even further so that they can use the proceeds to pay the previous deferred taxes and keep the difference.
If any significant part of that article is true, I see self dealing that would already be against IRS code. It's just a matter of enforcement. We often already have the laws to solve the problems we identify.
Not at all. The real estate share of income is probably at its highest among a lot of people who belong to the non-labouring class, but are far from ultra wealthy. But it's nice to have a scapegoat, isn't it?
If you belong to the 'non-laboring class' you are by definition the ultra wealthy. It's wild how much people are willing to slide goalposts to make themselves feel better.
While about 50% to 60% of the adult U.S. population are active W-2 wage earners at any given time, the percentage that relies on labor exclusively (meaning they have zero capital income or assets to fall back on) sits right around 40% to 50% of working households.