If you mean the difference between the top line capital gains vs income tax rates, I generally agree but also understand the math does not.

You could reset realized long term capital gains taxes to match income tomorrow and it would not be a huge material difference in the budget. I am 100% for doing this anyways simply because it’s fucking absurd any professional W2 employee is paying more percentage in taxes vs someone who just happens to have idle cash at hand - but it’s more of a “social contract” thing for me than actual tax policy.

The issue really is tax deferral strategies and wealthy folks being able to consistently find strategies to roll over investment dollars into new investments without ever having their gains be subject to pretty much any tax. Stuff like stock buybacks, tax loss harvesting, 1031 exchanges etc.

I don’t think the “loans against a stock portfolio” tax dodge thing is nearly as large as social media decided to pretend it is - but I am very much in favor of taxing any realized value at regular capital gains rates at the time of realization. This means you will probably need to sell a bit of an asset to pay the taxes - which is the entire point.

Unrealized gains are tricky. I’ve been in a situation as a bootstrapped startup founder where I owed “phantom” tax on money I had not yet realized and ended up taking a loss on years later. Zero ability to recover those taxes paid. It put me into a hole for over half a decade. This gives huge preference to those with existing wealth and makes it even harder for someone with nothing to “come up” without handing out a majority share of their company/idea to idle capital. Especially if you’re just doing regular economy things to create a small business doing boring stuff at single digit net margins.

> The fact that an earned derivative gets heavily taxed and an unearned derivative gets lightly taxed is so stupendously wacky that the absurdity is obvious, but the integral is the core problem.

The fact is that we have no problems with taxing consumption (billionaire buys yacht) but we have an extremely sensible aversion to taxing money spent on productive investment (company pays to build new factory). So business expenses are tax deductions.

The sensible way to handle this is to just use VAT, but then people say "what if they reinvest everything into new ventures and stop buying yachts"? The answer to which is supposed to be "that's what we want them to do". (They also say "consumption taxes are regressive" even though that's easy to fix by giving everyone a large fixed refundable tax credit.)

So to placate them we use something claimed to be an income tax and then push on it until it acts like a consumption tax. Dividends are taxable, but here's a 401k that makes them not while you're of working age and so you only have to pay the tax when you retire and start spending it. Capital gains are taxable, but only when you realize them, so they get deferred as long as you keep them invested in the same company but if you withdraw the money to spend it, that's when you pay. And so on.

This is, of course, dumb, because it makes everything unnecessarily complicated and creates lots of opportunities for tax avoidance, and because it makes the problem you're going to complain about next worse: If they keep reinvesting the money then there is too much economic power in the hands of too few people. But look at what you've wrought. Now if someone invests in a company they get to defer the taxes until they want to spend the money or -- and this is the big problem -- they want to invest it in something else. You have to pay the tax now if you want to do that.

Which means that everybody wants their money to be in some ever-expanding megacorp that allows them to defer the tax until they actually want to spend it, instead of taking the profits from one company and using it to invest in a new one. Which is the thing that wouldn't have been penalized if you were actually using a consumption tax.

And the corporations are actually the problem, not the owners. However much power is concentrated into Microsoft or Apple or Google, that's how much power the CEO of that company will have, regardless of what percentage of the company's stock they own. So you can't fix it by taxing the owners, you have to fix it by making the companies smaller, and that's the thing the existing system makes worse.