In the US, we even have a lower tax rate (the capital gains tax rate) for dividends if you have held the asset for more than a year.
Even step up basis when assets get inherited is a bad incentive, not to mention the $13M federal gift tax exemption.
If you want people to swing hammers and perform surgeries, then don’t tax swinging hammers or performing surgeries (or tax it less).
And if you don’t want people living off their or their ancestor’s hoarded wealth, tax it so they either do something with it or dump it so someone else can. This segways into significantly higher land value taxes.
In the US, we even reward people who just sit on unproductive real estate by deferring all taxes via 1031 exchanges (you sell one property and buy another, and there’s no tax). And on top of that, you pay excessively low land value taxes for this store of wealth that the rest of society maintains and protects for you.
Because capital gains can only occur when you sell something you bought. It’s a one time event, specific to a given asset.
income occurs without a change in control of some asset, due to dividends, pass through profits, wages, etc.
They’re fundamentally different types of things happening.
For example: rent == income. Selling the house? Capital gains.
As to if they are or should be taxed at different rates is orthogonal to if they are different types of events.
I can assure you, anyone that owns a home or stocks really would like to avoid treating them the same way. Which is a huge portion of the population, not just some random 1%’er somewhere.
And ‘unproductive’ real estate still pays property taxes.
There is no such thing as a free lunch, but there definitely are places that will make you broke if you eat there every day.
> They’re fundamentally different types of things happening.
Long term capital gains and dividends are taxed at the same rate in the US. If a company doesn't currently pay dividends its stock price goes up because of a combination of:
a) inflation
b) the expectation of future dividends
c) stock buybacks (a dividend by another name)
So long term capital gains are mostly either dividends or the expectation of dividends.
> capital gains can only occur when you sell something you bought
The ultra-rich can borrow against appreciated assets and never sell. Their heirs inherit much of it tax free and with a stepped up cost basis.
The only dividends that can get taxed like capital gains are qualified dividends and they’re very rare. Because they are dividends from selling capital assets in a business or the like. All other types of dividends are taxed like income.
Which is why the behavior around capital gains.
The loan situation is very very specialized, and loans that aren’t paid back in a reasonable amount of time or have no interest get considered as either gifts or income by the IRS.
For someone sufficiently high net worth, I’m sure there are ways to play various shell games for awhile in this - and if sufficiently frugal, even past their death.
But property taxes still get paid every year, income taxes still get paid on income, and capital gains still get paid when there is an actual sale.
for example, Elon Musk also eventually had to pay the largest tax bill ever as an individual to finance his shenanigans. $11 billion dollars.
>The only dividends that can get taxed like capital gains are qualified dividends and they’re very rare. Because they are dividends from selling capital assets in a business or the like. All other types of dividends are taxed like income.
This is incorrect. Lots of dividend income is classified as a qualified dividend.
>A dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121-day period that began 60 days before the ex-dividend date.
>This is getting really weird.
It is not weird at all. We tax wealth all the time. Every state/county has a property tax, some even have a property tax on vehicles. The simplest explanation is this, does society benefit from people hoarding wealth? For how many years? 1 year, 5 years, 10 years? Multiple generations?
Would it not be better if people were forced to get off their ass and continuously earn their keep? Or at least set marginal levels for the amount of wealth one can hoard? Sure, hit the ball out of the park and earn $10M, $100M, $1B. Enjoy it for 5, 10, hell even 20 years. But how does society benefit from this person or family creating an everlasting dynasty?
No, the government can exempt a certain amount that allows for a secure retirement. But it doesn’t need to allow for retirees to jetset around the world, buy luxury cars, and leave generational wealth behind.
> The only dividends that can get taxed like capital gains are qualified dividends and they’re very rare
"A dividend is considered qualified if the shareholder has held a stock for more than 60 days in the 121-day period that began 60 days before the ex-dividend date."[1]
I don't know where you got the idea that they're rare. You literally have to hold a US stock for a few months and any dividends from it are qualified.
> How does that fit in your theory?
That Elon Musk's impulsive behavior makes for bad tax planning? I hope I never get into a situation where my poor decisions create an $11b tax bill for me.
