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Most super-rich people make their money by owning their own businesses. They get capital income rather than ordinary income. But they also tend to work very hard, meaning they are not the "idle rich" collecting capital income passively.
nber.org/papers/w25442
nber.org/papers/w25442
Also, the authors find that the rich people's work effort appears to be necessary for their capital income; after they retire, the profits of their businesses fall by an average of 2/3.
nber.org/papers/w25442
nber.org/papers/w25442
In other words, the notion that capital income = passive income of the idle rich isn't generally true in today's economy.
Yes, there are some super-rich people who inherit businesses or land and sit back and collect checks. But they aren't the norm nowadays.
Yes, there are some super-rich people who inherit businesses or land and sit back and collect checks. But they aren't the norm nowadays.
cc @MattBruenig
Caveat: This is measuring people with super-high *incomes*, not super-high *wealth*.
But if you have a ton of wealth and it isn't earning you any capital income, you're highly unusual (and also probably dumb), so it isn't *that* different.
But if you have a ton of wealth and it isn't earning you any capital income, you're highly unusual (and also probably dumb), so it isn't *that* different.
Upshot: A lot of what we legally classify as capital income for super-rich people is actually labor income. By taxing capital gains at a much lower rate than ordinary income, we're essentially giving these folks a giant tax break.
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