Working People Deserve Fair Tax Treatment, Not Just a Day Off
By Morris Pearl
Labor Day is a day to celebrate the importance of working people in American life, to show how much we value the contributions of the millions of people who give their time and their sweat to support themselves, their families, and their communities.
But while having a day off is nice, working people should have more. We shouldn’t let Labor Day distract us from the fact that the American economy is rigged, through our tax code, against working people and in favor of rich investors like me.
Our tax code treats income differently depending on how you make it. There is one set of tax rates for money you get from a job (ordinary income) and another set of rates for money you make on long-term investments like stocks (long term capital gains), an option only available to people who already have enough money to invest. You might think that money earned from work would be treated preferentially (after all, hard work is a cornerstone of the American dream), but you’d be wrong. The rates that rich people pay on money earned passively from their investments is significantly lower than what most working people pay.
Say you and your spouse together earn $100,000 a year from working 40 hours a week, 52 weeks a year. At the end of the year, you will end up paying about $7700 in federal income taxes. While you were doing that, say my wife and I sat on a beach all year, sipping margaritas and soaking up the sun, and at the end of the year I decided to sell a few stocks and make $100,000 in capital gains. I would pay $0 in taxes on that $100,000. Does it seem fair that I should end up $7700 richer than you when I sat around all year while you worked hard for your money?
Let’s say I decided to sell a lot more stock and take in $10 million in capital gains. That’s more money than most people will ever earn in their entire lifetime, but I only pay a top tax rate of 20% on it. To put that into perspective, if you’re a single person working for a living you’ll start paying a higher rate than that after earning just $40,126 in taxable income.
This isn’t just a small loophole – this is a massive sinkhole of tax evasion. Really rich people tend to earn most of their money from capital gains. They don’t work for a living, they let their money work for them. I haven’t worked in years – I now just live off of my investments, and I’m making more than I ever did when I was actually working, and paying a lower tax rate on it.
If you work for a living, you should understand this one thing about the tax code: a dollar rich people made off of their money is worth more than a dollar made off of your sweat. Think about that for a minute. If you are working, you keep less of every dollar you make compared to someone who is not working, who is living off their investments.
Our tax code is deliberately designed to reward capital income over labor income, and it gives people who are already rich a permanent advantage over everyone else. Our elected officials may talk endlessly about the value of a hard day’s work and the nobility of labor, but that’s all many of them are willing to do. Talk is cheap. If politicians really want to honor working people, they should stop talking about hardworking Americans and start giving their income equal treatment.
Morris Pearl is the Chair of the Patriotic Millionaires and former managing director at BlackRock, Inc., the world’s largest asset management company. He is a current wealthy investor.