Gaining, and Losing, Capital

Anyone plugged into US politics has heard the debate about capital-gains tax rates -- currently pegged at 15%, lower than most rates for earned income (particularly for the people actually earning capital gains). Supply-siders claim that capital gains are "double taxation" (as if all monies in markets are not taxed, repeatedly, as they move around and are involved in various transactions) and that lower rates stimulate investments by increasing the potential rewards for such investments.

Those things may well be true. But those same supply-siders are usually also the people who note that taxation tends to depress interest in the things taxed -- if something costs more, people tend to do less of it. This is one of the rationales behind "sin taxes" -- cigarettes have a punitive tax on them in part to discourage smoking.

I haven't seen anyone connect those two things, though.

If we have a tax regime in which capital gains are taxed at a lower rate than earned income, we are systematically providing a disincentive to work and an incentive to passively gain from already having already accumulated wealth.

In a healthy, well-functioning society, though, working would be privileged -- taxes would be organized so as to provide incentives to work rather than to let your money do the working. We are clearly not a healthy, well-functioning society.