Income from investments or property value increases is taxed at half the rate as it's considered property gains tax. Right now, you actually get taxed less for doing nothing than for labor.
This was all designed to oppress the poor and benefit the rich. Most rich people don't actually do anything for their living. They just let their assets earn money for them. When those assets appreciate in value then they get taxed half. It is true that when the assets generate income independent of their value, they are supposed to be taxed at the full rate, but the rich get around that in different ways. Ways that the poor and even middle class cannot afford.
On the other hand, the way the poor and middle class earn their living is always taxed at full value. The US does have what they call a progressive income tax system where up to a certain amount of income, the rates are lower for that income amount and gradually increase in tiers. However, that doesn't really benefit anyone unless they are the poorest of the poor. The main problems (or features for them) of the progressive tax system are:
The tiered system discourages single income two parent households. If there are two households with the same income but in one where one parent works versus in the other where two parents work: The two parent working household will be charged less taxes because each parent will be able to claim the lower tax tiers versus where the one parent would only be able to take advantage of them once and have to pay more of the income at the higher tiers. Some states do potentially have what are called income splitting laws designed to mitigate this, but those tend to be limited and by default, this system disadvantages two parent single income households.
As inflation rises, governments are often slow to adjust the tiers. And the tiers are usually fixed (not tied to inflation). So the tiers become less and less meaningful over time. In some areas, by the time you are making $100,000, most of your income is being taxed at or close to the top rate. However, as anyone knows, $100,000 isn't a whole lot if you're trying to raise a family even if you got to keep all of it, which the government would never allow.
If you live in an expensive area (such as a big city), you need a large income just to survive there (for example: just to be able to afford rent). However, even though you're not wealthy in that area and most of your income is used for necessities such as rent, it is already being taxed at close to the top rate. That doesn't include the fact that some of these big cities have their own additional income tax further impoverishing their residence. The rich have easy ways of avoiding this such as being able to afford to arrange for official residency outside these cities and states even while technically living there.
It makes taxes more complicated. Both in terms of preparing them and planning your income in order to minimize them.
It allows the rich politicians to claim that that while a 40% to 50% (when you combine city, state, and federal) might seem high, it's only the rich who are paying that due to the progressive tiered tax system. They claim that most people will pay a lot less. However, the reality is, even lower middle class people need to pay close to the top rate just to maintain their standard of living. The truly rich, if they haven't setup some legal entity to make sure they pay even less, pay half the top rate (20 to 25%) if they get their income is from capital gains (and that's how most of them structure their income to minimise the tax they have to pay). That's less than most of the lower tiers that the poor have to pay. And the rich also get the advantage of the lower tiers, except that it's so little money to them, they likely don't care about them, but they still get them.
It manipulates the labor market by discouraging people from working additional hours from which they may need income, but have determined it not to be worth it. This is because let's say for the first 40 hours of the week you are being taxed at tier 1 to 3 and the 4th tier is a big jump in income tax. At that point, you might just say to yourself that it's not worth working those hours as you get to keep so little of the money at that point. Even if you might need the money and even if there is work that needs to be done. What makes this worse is that people get tired as the week drags on and additional hours become more personally taxing and tiring. So why would you work your most personally taxing and tiring hours of the week just to give most of that income straight to the government, even if you really need the money and your employer really needs the work done.
Income from investments or property value increases is taxed at half the rate as it's considered property gains tax. Right now, you actually get taxed less for doing nothing than for labor.
This was all designed to oppress the poor and benefit the rich. Most rich people don't actually do anything for their living. They just let their assets earn money for them. When those assets appreciate in value then they get taxed half. It is true that when the assets generate income independent of their value, they are supposed to be taxed at the full rate, but the rich get around that in different ways. Ways that the poor and even middle class cannot afford.
On the other hand, the way the poor and middle class earn their living is always taxed at full value. The US does have what they call a progressive income tax system where up to a certain amount of income, the rates are lower for that income amount and gradually increase in tiers. However, that doesn't really benefit anyone unless they are the poorest of the poor. The main problems (or features for them) of the progressive tax system are:
The tiered system discourages single income two parent households. If there are two households with the same income but in one where one parent works versus in the other where two parents work: The two parent working household will be charged less taxes because each parent will be able to claim the lower tax tiers versus where the one parent would only be able to take advantage of them once and have to pay more of the income at the higher tiers. Some states do potentially have what are called income splitting laws designed to mitigate this, but those tend to be limited and by default, this system disadvantages two parent single income households.
As inflation rises, governments are often slow to adjust the tiers. And the tiers are usually fixed (not tied to inflation). So the tiers become less and less meaningful over time. In some areas, by the time you are making $100,000, most of your income is being taxed at or close to the top rate. However, as anyone knows, $100,000 isn't a whole lot if you're trying to raise a family even if you got to keep all of it, which the government would never allow.
If you live in an expensive area (such as a big city), you need a large income just to survive there (for example: just to be able to afford rent). However, even though you're not wealthy in that area and most of your income is used for necessities such as rent, it is already being taxed at close to the top rate. That doesn't include the fact that some of these big cities have their own additional income tax further impoverishing their residence. The rich have easy ways of avoiding this such as being able to afford to arrange for official residency outside these cities and states even while technically living there.
It makes taxes more complicated. Both in terms of preparing them and planning your income in order to minimize them.
It allows the rich politicians to claim that that while a 40% to 50% (when you combine city, state, and federal) might seem high, it's only the rich who are paying that due to the progressive tiered tax system. They claim that most people will pay a lot less. However, the reality is, even lower middle class people need to pay close to the top rate just to maintain their standard of living. The truly rich, if they haven't setup some legal entity to make sure they pay even less, pay half the top rate (20 to 25%) if they get their income is from capital gains (and that's how most of them structure their income to minimise the tax they have to pay). That's less than most of the lower tiers that the poor have to pay. And the rich also get the advantage of the lower tiers, except that it's so little money to them, they likely don't care about them, but they still get them.
It manipulates the labor market by discouraging people from working additional hours from which they may need income, but have determined it not to be worth it. This is because let's say for the first 40 hours of the week you are being taxed at tier 1 to 3 and the 4th tier is a big jump in income tax. At that point, you might just say to yourself that it's not worth working those hours as you get to keep so little of the money at that point. Even if you might need the money and even if there is work that needs to be done. What makes this worse is that people get tired as the week drags on and additional hours become more personally taxing and tiring. So why would you work your most personally taxing and tiring hours of the week just to give most of that income straight to the government, even if you really need the money and your employer really needs the work done.
Deserves to be its own post, not to languish in replies