The first Monday of every September, the country comes together to celebrate Labor Day: a holiday meant to celebrate overworked, underpaid workers and rally around shared values. 125 years later, American workers continue to put in tireless hours only to be behind the 1% of the country that enjoys loopholes in tax codes.
While gross inequality lingers on today’s Labor Day, Donald Trump is advocating for even more tax cuts for the rich, and even flirted with the idea of reducing the already-advantageous capital gains tax. Our elected officials often speak eloquently about the nobility of labor and the value of a hard day’s work, but money talks louder, and our tax code is deliberately designed to reward money over work. It gives an enormous built-in benefit to people who already have money, and are using that money to make more money, rather than those people who are using their skills and time to make money.
Don’t believe me? Here’s how.
Our tax code has two different rates for two distinct types of earnings: “ordinary” income and “capital gains” income. Ordinary income is the tax you’re probably most familiar with; it’s the tax that comes directly out of your paycheck you earned for your work. The capital gains income tax, on the other hand, is a different rate that is paid on money that comes from the sale of an asset. Let’s say you buy a stock or real estate, it goes up in value, and you sell it for profit. That profit is considered a capital gain, and as long as you held that asset for at least a year, you pay the capital gains rate instead of the ordinary income tax rate.
While two people can make exactly the same amount of money, one of them works full time all year and the other sells a stock after sitting on a beach all year sipping strawberry daiquiris, they’ll be taxed completely differently.
Investors are able to earn over $77,000 without paying a dime in taxes. What’s worse, the top rate for capital gains taxes is barely over half that of normal income, giving them a massive tax discount. Even someone earning hundreds of millions of dollars a year in capital gains pays a lower top tax rate than someone earning just $40,000 per year in income.
Surprising? Not so much. Capital gains income allows the country’s wealthiest to live off of their investments, while everyday Americans live paycheck-to-paycheck and pay more in taxes. This means that billionaires can lounge at cocktail parties and earn millions from their investments, while working Americans put in countless hours and still can’t get ahead. This isn’t a small problem, either. This is the kind of special tax treatment that allows the rich to continue getting richer, while the bottom half of Americans have less wealth today than they did in 1989. Meanwhile, the richest 1% have seen a 600% surge in wealth since that year.
While you enjoy your day off today, don’t forget that this country’s tax code is rigged at the expense of the workers that we celebrate today. On this Labor Day, please remember that there is no reason why investors should pay lower tax rates than people who are workers. The economy and our tax code need to work for the majority of Americans, not just a few rich people.