03:33 PM on 11/10/12 
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Ollie McKraut
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Ollie McKraut's Avatar
Male - 24 Years Old
It depends on how much you make and how you make it. I get taxed about 8% and make about 10-11k a year. It progresses that way where the more you make the more you get taxed. However, there are very little taxes levied on returns from investments (capital gains). For example if you invest in Apple and their stock prices go higher, the money you made off that would not be subject to much taxation.

But yes our tax system is screwed and the rich need to be taxed a lot more.

Capital gains are taxed at a lower rate to incentivize investment. Investing in another's business is voluntary deferral of your own purchasing power, in favor of lending it to another entity that can use it to generate capital appreciation for both themselves and you.

Meanwhile your investment grows that business (money to buy a big machine, for instance), allowing them to prosper within their community, ideally serving more customers with a useful product, and employing more workers to increase production. Meanwhile, that growth makes your investment attractive to other growth-seeking investors, who will pay for the rights to the access you bought. Sell high.

You've earned a little money and helped grow a business, which in turn is pretty good for everybody involved in the economy. However, you accepted some risk, and also deferred access to your own money. You only did that because you expected to make a real gain on that money. If you were to be taxed on that gain the same amount as your income and paycheck, you probably would have just bought a Ferrari. Great for you and Ferrari, but not for the general economy.

On the other hand, if taxes were bumped up on your income, you probably wouldn't just quit working (though eventually, you would). So that is why capital gains are taxed less than income. It's a behavior the government needs in order to keep the economy growing, to support the tax base it needs to build roads, bridges, etc. When investment and liquidity locks up, it's very bad (see the end of this century's first decade).

That low, capital gains tax rate is available to everybody, though high fixed costs of trading and little "disposable" income often exclude the bottom tax tier (probably won't be buying any APPL). But as an eighteen year old who'd been working a couple hours a week in high school, I remember scraping up enough to make a couple of ETrade swaps that ended up gaining a thousand bucks before I had to sell to cover the last bit of my college bill next winter. To my chagrin, I later got a bill from the IRS for the taxes haha.

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