Capital Gains Should Be Taxed At Rate Of Earned Income

The United States has two huge economic problems. First, it is the most unequal of all the developed countries when it comes to wealth and income -- and even more inequality than some third world countries. Second, it has an enormous national debt that is now growing at about a trillion dollars a year.

What has caused this? The obvious answer is the economic policy of the Republicans (trickle-down economics). They want you to believe that whatever is good for the richest Americans is good for all Americans, and the answer to every economic problem is just to give more to the rich.

Part of this economic policy is to make sure the rich are not having to pay their fair share of taxes. They just made this worse with the tax reductions of 2017 -- reductions that mainly went to corporations and the richest people. This only made both problems worse -- increasing both the national debt and the country's inequality.

Several Democrats have offered solution. Rep. Ocasio-Cortez proposed a 70% tax on any income over $10 million. Sen. Warren has proposed a wealth tax. And Sen. Sanders is proposing a small tax on stock market trades. These are all good ideas, in my opinion, but there is a simpler idea that would go a long way toward solving both the debt and inequality. Bill Gates, one of the richest men in the world, says the most effective way would be to eliminate the capital gains tax and tax all income at the same rate. I agree.

Currently, the top earned income tax rate is about 39.6%. But most of the rich don't pay that. Instead of the earned income rate, they pay a capital gains tax rate which is much lower (20%), because much of their income is derived from the stock market (investments and dividends). Note in the chart above that the top 1% get more than half of their income from capital gains (51.9%), which means they only pay a 20% tax on that income. And when you consider the top 0.1% (the super rich), that capital gains income goes way up. In essence, they pay a smaller tax rate than many in the middle class.

This is not only unfair, but it makes no sense. All income should be taxed at the same rate -- the earned income rate. It's time to do away with the special capital gains tax rate.