The Nonsensical Notion of ‘Unearned Income’
Last March, in a midnight deal to save union health care plans from taxation, Nancy Pelosi amended the notorious ObamaCare bill to levy a new 3.8% tax on “unearned” income. In a follow-on PR tour designed to put a positive spin on this disastrous piece of legislation, President Obama lauded the new tax, saying:
Right now, if you’re on salary, … you’re paying your Medicare tax on all of that … it’s part of your FICA. But if you’re Warren Buffett and you get most of your money from dividends and capital gains, you don’t pay Medicare tax on that. You’re eligible for it. You’re going to get the same Medicare benefits as anybody else. But because your source of income is what’s called unearned income — capital gains and dividends — you don’t have to pay this.
Leave aside the obvious breach of Obama’s campaign promise to not levy new taxes on those earning less than $200,000. Forget too the Democrat’s Orwellian wordplay in transmuting a “Medicare tax” into an “unearned income Medicare contribution.” Instead, consider what is meant here by “unearned,” for it reveals much about the Obama/Pelosi worldview — including insights into how to combat it.
The concept of “unearned” income is the remnant of a long-refuted economic theory known as the “labor theory of value.” Though first proposed by classical economists such as Smith and Ricardo, today it is most closely identified with Karl Marx, who was its last — and most consistent — advocate.
Essentially the labor theory of value holds that values are determined by the (physical) labor it takes to create them. Thus physical exertion becomes the measure of an item’s worth. According to Marx — and to his modern adherents like Obama, Pelosi et. al. — any values created in ways other than by brute force are “unearned.” (J.S. Mill originally coined the term “unearned increment” to characterize the appreciation of property “without exertion or sacrifice.”) So while today’s politicians generally fail to protect the individual’s right to property, they’re openly hostile to so-called “unearned” income and property. Hence their unabashed support for these new taxes.
But does their Marxist view represent an accurate description of the productive process? Certainly physical labor is often required to convert the raw material of nature into the specific forms we need to live. Yet increasingly, productivity stems from our abstract knowledge of the world (science) and our imaginative methods of putting this knowledge to use (technology). The value of inventing a transistor or discovering a polio vaccine simply cannot be measured in labor units. But this doesn’t mean that the years of dedication and the unyielding independence of spirit that such accomplishments demand should somehow be discounted. On the contrary: doing so is patently unjust.
To further appreciate the travesty of characterizing certain income as “unearned,” let’s consider where capital gains, dividends, and interest come from. Essentially they’re the product of thoughtfully deployed capital or savings. To obtain them requires many arduous steps, the first of which is to produce more than one consumes. Given today’s consumer mentality, this in itself is something most are unwilling to do. (Note too that in the initial savings phase, income from production is typically taxed, such that future taxes on savings amounts to double taxation.)
Let’s take a look at Labor’s theory of value (any variant be it Marx’s Smith’s, Ricardo’s): quite simply it is an absurdity and there are two very simple proofs.
One isn’t in any Economics book but in Heinlein’s “Starship Trooper”: “No amount of work will give any value to a mudpie. It will remain a mud pie. Zero Value”.
The second one is my own. It is not as radical but I like it because it is based on a well known mathematical technique: proof by absurdity: “if a shift in technology halves teh unitary cost of something and the production is doubled then according to labor theory of value nothing has changed despite the fact that before the new tecnology people were starving and no longer aren’t”. This is absurd so the theory is invalidated.
Not true, according to the labor theory of value, the price should be cut in half or the workers’ wages doubled. However, the investors are to receive nothing in return for their outlays for the new technology.
Labor theory of value ebnds eventually reducing the value of an item to the amount of work in it be it direct or indirect (ie producing the raw materials and tools needed for its productionà so while I imporoperly used the word “cost”‘ instead of labor I thought it was clear. So let’s reformulate it: Item need 10 man hours, now only 5 ad quantity has doubled. So despite having 2*N the amount of goods labor theory tells me there has been no progress respective when there was only N.
I fear it is your refutation who doesn’t hold.
Ummm….no.
umm, yes, and well proven
Ya think?
I think your analysis falls short.
Investing is unearned for many if not most. Putting money in a mutual fund requires no actual input on the part of the investor.
Meanwhile intellectual property (patent, etc.) pays back at a return rate such that an immediate 1 year return makes it appear as if the value of the invention or work is $N per hour, but over the life of the invention there is still a payback of N = (X years * $/yr.)
Some random guy investing in your company via a mutual fund didn’t *earn* based on his ability to read his crystal ball.
It’s one thing to fund a startup and work alongside the principals and generally flog the effort. It’s another to read a stock report and get lucky.
Similarly buying a property and doing ZERO with it and then reselling later for a profit for no reason other than the luck of having the land values rise because some other (real) investor busted his hump and developed a golf course right next to it is simply unearned.
Perhaps if there were a way to separate active investment vs mere luck or simple attrition etc then this financial stuff would be simpler. But to call the entire concept of unearned income marxist is silly.
Mr. Alston,
I disagree with you in two respects.
First, I think it is wrong to say that a mutual fund investor does no work — unless, perhaps, he just slaps his money into the first fund he hears about. To the extent that someone investigates, say, which mutual funds perform better than others or how their general investment strategies differ, he IS performing the same kind of mental effort as a professional investor or someone with much more time on his hands. But he is doing less, and his return will be diminished by whatever he is paying the mutual fund to do in his stead, such as more detailed research and buying or selling stocks.
Second, so what if some investor gets lucky, either in making a good pick or in having inherited his money in the first place? Is that money any less his property or any less worthy of government protection? The fact that, yes, someone can possess things he hasn’t earned, in no way injures Mr. Ghate’s point, which I take to be a much-needed bringing to the forefront of the greatly under-appreciated role of rational effort in production.
Gus Van Horn
Actually GL, once again, you are the one who has failed to think things through.
There is still thought that goes into the process, one has to select which mutual fund to invest in, and one must keep track of the performance of the fund you have selected.
Beyond that, there is sacrifice. You are forgoing present consumption for the hope of greater consumption some time in the future. If you don’t believe such sacrifice deserves to be rewarded, then you will wind up in a world in which investments are no longer made.
I really enjoyed this article. Especially in the last 20 years, we’ve seen that more and more wealth is created by the *mind*, not just brute muscle. Were it not for the creativity, intelligence, and boldness of innovators and venture capitalists, our economy would be a basket case. And the human mind needs *freedom* to operate.
If our politicians wish to vilify capital gains as “unearned” and punish (rather than reward) the thought and judgment that it requires, then it will be like pouring sand into the engine of our economy.
Fortunately, there are still many people who realize the importance of man’s mind as the ultimate driver of productiveness and prosperity in a society. Thank you, Amit, for reminding us of this fact.
More importantly, it’s settled and unfollowed precedent at the SCOTUS level that labour is not income, or taxable.
Regardless of what term you use to describe investment income, this income is not currently subject to social security or medicare taxes. Earned income is already taxed at a higher level in most cases than investment income, which is a disincentive to work. Rationalizing our taxation system will require increasing the taxes on capital gains to at least the same level as taxes on earned income. This is entirely normal and healthy.
The truly nonsensical notion was identified by Warren Buffet.
The solution to this problem is very simple – raise the tax rate on unearned investment income. Anything else is truly nonsensical.
Peace.
DS
I am trying as hard as I can to “take care of ” my own retirement years. Pension (same job 32 yrs), all the while paying all “those named taxes(SS, medicare/caid, etc)” and trying to save enough so as not to have to depend on the government for more (food stamps and/or any other entitlement)later. So, I invest the money I already paid taxes on (ALL of them) and take the piddling amount I have left and invest it in some thing I feel is a little less risky(mutual fund) than a start up. Why should I be taxed on money that I’ve already paid tax on and am willing to risk American business for a “return”? Sorry I’m no Buffett, just an average joe trying to take care of and provide for myself, why is that so wrong??? that the government keeps trying to figure out newly worded ways to take it away?
David S asserts:
The solution to this problem is very simple – raise the tax rate on unearned investment income. Anything else is truly nonsensical.
The alternative is to cut government spending so that ALL taxation can be lowered. There is nothing nonsensical about that.
How about taxing consumption instead of income? That way, it makes no difference whatsoever where the money came from. We’d save money on compliance, and there would be no bias between current and future consumption. Tax a man’s wealth and you deny him his right to property; tax a man’s income and you make him a slave. Tax a man’s consumption, however, and you a merely imposing upon him the cost of his purchase both to the producer and to society (that is, to pay for the infrastructure and security required to produce a functioning economy). Allow purchases made up to the poverty level to be made tax-free, and allow unlimited tax-exempt purchases for Purple Heart awardees and their spouses, but otherwise, tax all consumption.
Buffet only betrayed his own arrogance. Selfish jerks like Buffet have already made their billions, so now they want to close the door on everyone else. The tax increase is pocket change to Buffet, but it is a big dent to millions of small investors.
Mr. Buffet’s comment also relies upon a little slight of hand: confusing percentages with actual amounts of money. He pays millions of dollars in capital gains taxes, while his maids and servers may pay a few thousand in income taxes and payroll taxes. So any conclusion of “un-proportionality” is just confused.
And the even more fundamental point here is that “payroll taxes” such as FICA and Medicare should not exist, never mind have their application broadened. They, and the programs these taxes fund, should be abolished as immoral abominations. They have no place in a society that protects the right to private property.
An excellent article, Mr. Ghate.
I would say, however, that not only must we challenge the false economic theories and notions on which the Obama/Pelosi/Reid axis-of-looters rely — such as the false labor theory of value — it is crucial that we challenge their moral premise as well.
Obama makes this premise clear when he asserts, “Man is his brother’s keeper.” This, of course, is the morality of sacrifice known as altruism. And the nature of our entire problem is made clear by the fact that not a single one of those alleged champions of freedom and capitalism — the conservatives — dares to oppose this notion.
In “Atlas Shrugged”, Ayn Rand dramatically illustrates the anti-rational, anti-life nature of this morality. But you don’t need a work of fiction to see the practical results of altruism — it’s effects are on display all around you. Here in America the practical result of this morality is the massive regulatory/welfare state that promises to eat us alive if left unchecked
The fate of our nation hinges on the American people’s answer to one basic issue:
Is man born free and independent — endowed with the same, equal, unalienable rights as all his fellow men — including the moral right to exist for his own sake and the right to pursue his own happiness, by means of his own honest effort? This was the view of man held by those who created America.
OR:
Is man born into bondage to “the needy“ — endowed not with rights, but with the duty to sacrifice his earnings to any stray moocher who fails to fulfill his own needs — doomed to labor for life in quasi-serfdom as “his brother’s keeper”? This is altruism — this is the view of man that the need-worshipping progressives and leftists have invoked to destroy capitalism and replace it with a looting welfare state that promises the final destruction of America.
For decades, I’ve watched as Republicans, conservatives and, indeed, the bulk of the American people have evaded this issue, usually with such rationalizations as, “We don’t have to go to extremes!” or “We can reach a reasonable compromise!”
Well, wake up America! Those who are hell-bent on “going to extremes” are here now and in power. And no rational compromise is possible with cannibals who propose to eat you.
Americans must stand and proudly assert their right to exist for their own sake — they must learn to answer Obama by proclaiming that “Man is not his brother’s keeper — because man is not a slave — not to his brother, not to his neighbor, not to “the needy”, not to “society” and not to the government.”
It’s either-or America — either you reject the morality of altruism and embrace the moral right of every individual to exist for his own sake, by means of his own honest effort — or perish in a long, drawn-out, final looting of this once-magnificent nation.
Make a moral stand against altruism — or go quietly in the night. Americans must choose.
This is not altruism; this is slavery. Altruism is the virtue of charity. But charity ceases to be charity if it is forced. Charity comes from the Latin word for love, “charitas.” By definition, charity is an act of love extended to another person. No man can call himself a libertarian and speak against charity, for it is a free act of love committed by an individual with his own resources. But love cannot exist if it is forced; love only exists as an act of free will.
You have no knowledge of the words you use.
Altruism means donating your own time and money.
Donating someone else’s money is theft.
Donating someone else’s time is slavery.
@MarktheGreat, your usage of the terms is consistent with popular discourse, but you were replying to someone who used “altruism” in the philosophical sense. Philosophically, altruism is the belief that an individual is morally subordinate to other individuals. (Aggregately, this results in everyone being morally subordinate to the group, and no individual being sovereign and having any right to his or her own life.) Conversely, under a free and capitalistic society, all individuals are sovereign and have a moral prerogative over their own lives, and that prerogative holds unless the individual acts in a manner that violates the sovereignty of another individual.
If you were to talk to 100 people “off the street,” I bet 95+ of them would think “altruism” and “charity” were synonymous. In popular usage, they basically are. This conflation stands as a significant obstacle, in my opinion, to teaching the difference between individualist and collectivist morality. As soon as one takes a moral stand against the *philosophy* of altruism, they are viewed in the mainstream as a callous, heartless bastard who would never give a drop of water to a dying man, even voluntarily.
@G.L. Alston-
Of course there is risk in any purchase. You may have bought the land to fish, but it might be swallowed by a sinkhole tomorrow. It is impossible to know what acts of man or nature might ever come to pass. By buying that land, you have foregone your opportunity to do anything else with those funds, such as invest them in AAPL or whatever. Either way, the possibility exists that the other investment might have been more productive, even if this is measured as the pleasure of you going fishing without being swallowed by the earth versus simply staying breakeven with a stock position. Intent is not determinative here; instead, “cards speak.”
myth buster wrote:
This is not altruism; this is slavery.
MarkTheGreat wrote:
You have no knowledge of the words you use. Altruism means donating your own time and money.
Mike has explained it well.
The two of you make the innocent and benevolent mistake of thinking that altruism merely means voluntary charity with one’s own resources.
But is voluntary charity all that Obama is calling for when he invokes — as he often does — the slogan that, “Man is his brother’s keeper”?
Is Obama, through such language, merely exhorting Americans to increase their charitable contributions?
No, he’s not. Rather, he is declaring that as individuals we have a moral duty to sacrifice for the sake of others — and he is declaring that he intends to have government enforce that sacrifice.
If you think this represents some sort of misuse of a Christian virtue, then why aren’t Obama’s programs being opposed by religious leaders? Every major Christian religious leader from the Pope on down has endorsed Obama’s coercive takeover of the healthcare system — why would they back such a takeover if they believed that altruism only means voluntary — not government-enforced — charity?
Altruism, a term coined by August Comte, literally translates as “otherism”. Here is what Comte had to say about its meaning:
The (altruist) point of view cannot tolerate the notion of rights, for such notion rests on individualism. We are born under a load of obligations of every kind, to our predecessors, to our successors, to our contemporaries. After our birth these obligations increase or accumulate, for it is some time before we can return any service…. This ["to live for others"], the definitive formula of human morality, gives a direct sanction exclusively to our instincts of benevolence, the common source of happiness and duty. [Man must serve] Humanity, whose we are entirely.
The Catholic Encyclopedia says that for Comte’s altruism, “The first principle of morality…is the regulative supremacy of social sympathy over the self-regarding instincts.”
The essential point to understand is this:
You cannot, on the one hand, concede that you have a moral obligation to sacrifice for the sake of others — but on the other hand claim that this moral obligation is merely voluntary. That which is voluntary is optional and is not a duty. Once you concede the moral high ground to your opponents, you are doomed — your claim that your duty is only voluntary will ring hollow — and those who argue that government should insure that you make good on your duty to sacrifice to others will have the more compelling argument.
That, in fact, is precisely why and how the altruism-spouting leftist and liberal Democrats have succeeded in creating such a massive welfare state over the objections of the conservatives and Republicans.
Another great article. This author presents a clear and informative description of the fallacies of thinking concerning “unearned income”. Of course this income is earned!
The Marxist claim that only physical labor amounts to real work, and thus that only income from such work is “earned income” is wrong, as Amit Ghate eloquently details in the above article. Investment income, even in mutual funds depends on the insight of the investor and the investment professionals on whom he relies. We should lower spending AND taxes for all income, not increase taxes for income that is allegedly “unearned.”
“Entitlements”,– the Death of the Budget. Entitlements are payments other than quid-pro-quo, i.e. nothing is exchanged, the “entitlement” — is a gift.
Entitlements should be forbidden in the Constitution. and no quibbling.
an “Entitlement” is an amount paid to a person because of his/her circumstances rather than in exchange for his/her performance.
Another excellent article, Amit!
Calling investment income “unearned”, distinguishing it from a yearly salary, is just a tool for government self-interest. They can use it to reward their friends or for political advantage–whatever they need at the time. But they do NOT care about Warren Buffet’s tax compared to ours.
I’m not really sure what the point of this article really is.
Are you arguing that capital gains should be viewed as ‘earned’ income because you feel investment decisions equate to the same amount of work and effort as traditional physical ‘earned’ income?
Or are you arging that they shouldn’t levy medicare taxes on capital gains?
It seems to me that nobody is really disputing how much hard work goes into what people like Warren Buffet does. In fact if they acknowledge that and reclassify all investment income as ‘earned’ income then under current tax law that would create a tax hike for anyone working with money.
Cause it kind of seems like you think that investment income should be considered ‘earned’ but that they shouldn’t tax it.
The money was already taxed when it was first earned. There is no need to tax it again.
I agree with Jim, this article wastes a lot of time building a straw man and then just kind of wandering around. Yes one pays tax on one’s income, then if one saves and invests some of it one pays tax on the EXTRA amount it earns, which is also income. If you keep it under the mattress, then you don’t have to pay taxes on it again. BUT if it EARNS interest, dividends, whatever, then you pay on the INCOME. What the hell is the epiphany here? What does Marx have to do with it?
And just another reminder that the communities from which the Founding Fathers came, taxed people to help support the poor.
To say that profits earned from a mutual fund are somehow unearned is like saying that someone who pays a doctor for medical advice does not deserve to be healthy because he did not go to medical school.
The idea that the profits from saving money are “unearned” is a total inversion. It ignores that someone had to earn the money to save in the first place, it ignores that someone has to choose how to invest that capital, and it ignores that the saver foregoes present consumption for future consumption.
This is an excellent article and underscores the underlying ethical theory that is destroying America. This evil theory is the idea that the mind is of no value in the productive process, i.e., Marx’s idea that capital serves no value other than to exploit the worker by siphoning profits from those who do the “real” work. Savings are the lifeblood of productivity, innovation and hence, increasing living standards. Savings should be encouraged, not disparaged as a justification for more taxation. Furthermore, any taxation is a form of theft and should be regarded as such whether it be on wages or investment income.
We must dismantle the welfare state and limit government to protection of rights which would reduce taxes and therefore prosperity for all.
I agree it doesn’t make sense to regard gains from investments as ‘unearned’ – how you make your money is up to you, and it will require an amount of thought and effort. Either way, you’ve earned it.
But are they actually using ‘labor theory of value’ to justify extra taxing on capital gains? They apply Medicare tax (under FICA) to people on a salary, their form of income, and the bill proposes to levy the 3.8% tax on people who earn $200k+ from interest / dividends, their form of income (or substantial amount of income), not currently included in the FICA tax I don’t think. Isn’t this just making sure that more people’s main income gets taxed for Medicare? (rightly or wrongly)
I know they’ve called it unearned, which doesn’t make sense, but I don’t think they’re necessarily punishing people for the way they’ve earned it.
(I don’t know a lot on this issue so I may have got something wrong)
Jack,
I think you make a valid point in that they are saying, in essence, “everybody gets one arm chopped off, but there are these guys over here that haven’t been getting chopped, so let’s make it fair and chop them too.”
My take on Mr. Ghate’s article was that he was making a broader point than the details of just this one issue. For example, he says:
“As a result, they treat modern wealth as some sort of magical occurrence. It has no source, it is not “earned,” and the only question it raises is one of “distribution.” See today’s economic, social, and tax policies for the consequences.”
In other words, I think he is saying that this whole concept deriving from Marxism that profits from savings are “unearned” results in a state where the government characterizes this form of income as different or less worthy and uses it to justify taxation and distribution. Capital gains taxes, dividend taxes, estate taxes are all examples.
Very astute. The source of wealth is the creative human mind. Marx denies that, as do his modern-day followers currently holding government office.
The attack on Wall Street is another form of that attack on the mind. Bankers are the “brains” of capitalism in that they allocate capital to where it can create the most wealth. Attacking and hindering those wealth creators will undercut material progress.
In economics, you are also correct to mention Schumpeter. He understood that wealth creation is the function of creative entrepreneurship, and the root of that is the reasoning mind. Ayn Rand made that clear.
According to the logic of the labor theory of value, all cups of coffee are created equal (differences in preparation time being negligible), and a house on the beach in Carmel is an even swap for an identical house next to a sewage plant in Jersey City.
The gigantic flaw in the “tax unearned income more” concept is that the “income” can go away after it is taxed.
Take my case, for example. A couple of years ago I theoretically made $85K in capital gains from my mutual funds. And I paid the taxes on it. But that money was rolled over into additional investments – and the value of the funds went down considerably. They have never come back up to where they were. So I don’t have that $85K, and in fact I never really did.
There is no way I can go back to the IRS and say it was all a big mistake and I need a refund of my taxes.
But it is worse than that. Last year those same mutual funds generated $0 in income from Capital Gains but about $7K in dividends, which are taxed as ordinary income. And so I paid taxes on that $7K even though the mutual funds are worth less than they were when I supposedly made the $85K that I do not really have.
I see the checks I write to the IRS going out; I don’t see the “income” coming in. If I make money I pay taxes on it. If I lose money I end up paying taxes on money that is no longer there.
This process has happened multiple times, with me paying taxes on “income” that was in reality a loss; the latest crash was simply the worst.
I am baffled by the idea the the “The labour Theory of value” has been discredited. In an ideal economic system, with no artificial barrier to economic activity, the price of any good will converge to the cost of the labour required to produce that good. If the price is above the “labour” required to produce, additional labor will be applied and supply will increase. If the price is “Below” the cost of the labour to produce, the commodity will not support the required labour and suppply will decrease.
This fundemental economic foundation seems without question. In Michigan, we see this brutal economic fact everyday. The cost of our local labour is not supported by current commodity prices. The result is a 14+% unemployment rate.
In actual economic systems, vs ideal economic systems, economic activity is not allowed to reach equilibrium. In particular, there are people in positions of power, who have the political leverage to “Tax” the labour of others. This “Tax” is what is implied by Marx when defining “Unearned” income. Examples of the politically powerfull who are able to generate “Unearned” income include Government, unions, Slave owners (Thankfully, no longer), degreed proffesionals and capitalists (Bankers). Their income is “Unearned” because it is artificially elevated above the natural cost of labor due to political leverage.
The distinction between “Earned” and “Unearned” has nothing to do with physical vs mental labour. It is a distinction between labour which is engaged in the production of value, and labour which is engaged in acquiring of wealth through taxation of another persons labour.
I completely accept this premise. I differ with Marx, Obama and the majority of Democrats in the solution. The solution is not bigger governement and higher taxes on “Unearned” income. The solution is to tear down the artificial political institutions which inhibit the natural “Labour” value of commodities: Specifically:
1) Lower taxes across the board
2) Eliminate the political power of unions through right to work laws and bans on the unionization of federal employees
3) Eliminate the university system and replace it with State certification exams.
In general, give people economic freedom. Marx never understood this.
I believe the problem comes from the notion that if you aren’t sweating, you aren’t working. The classical labor theory of value discredits knowledge work.
It also discounts the time value of money, in that people are rewarded for saving, rather than consuming now.
I am baffled by the idea the the “The labour Theory of value” has been discredited. In an ideal economic system, with no artificial barrier to economic activity, the price of any good will converge to the cost of the labour required to produce that good. If the price is above the “labour” required to produce, additional labor will be applied and supply will increase. If the price is “Below” the cost of the labour to produce, the commodity will not support the required labour and suppply will decrease.
The fact it will eventually converge (provided the item is not a unique item like a work of art and provided we are in a perfect competition market) doesn’t bring back the labor theory of value from the dead. This theory asserts that labor is the source of value. No it is sn’t it is utility. Labor aka cost acts only as a constraint: if there is not a point in offer where people are ready to pay as much for a good as it costs to be produced then it is not produced. Period.
I think a more precise explication of what “labor theory of value” actually, concretely entails is in order.
Suppose you have a scientist with an IQ of 160 (i.e. they’re smart) and another scientist with the same degrees/time spent studying but who has an IQ of 110 (i.e. they’re only average intelligence). They both spend 1000 hours coming up with some contraption. Which one’s work should be more valuable in the market, i.e. which one would you pay more?
The more intelligent one, in a real or rational market, should be paid more. However, under the labor theory of value, since an equal amount of labor has gone into whatever they produce their work should be of equal value. This is just silly, to use the academically precise term. Stephen Hawking’s work is, and should be, more valuable than some non-entity physicist on staff at UC Berkley. That’s because he’s a genius, and the hypothetical Berkley prof is not.
Thus, the mind should be rewarded; intelligence, perception, and insight should be rewarded greater than mindlessness, dullardry and unawareness. Therefore, the labor theory of value fails. QED.
Don’t worry, be happy… for now.
Once they get everyone accustomed to this little extra tax on investment income, they’ll hit is with the real whopper… the intangibles tax, a “small” annual cut of your financial assets, no matter whether you made a little money or a lot of money (or, for that matter, lost a lot of money) on them.
Call it the Scrooge McDuck tax, as that perfectly captures what liberals seem to think that wealth consists of… a huge vault in your basement, filled with all your cash.
I can hardly wait!
If income from an investment is unearned, WTF do you call the paycheck of an SEC employee that surfs porn all day? An AG that weighs in on Laws he hasn’t read? A treasury sec that cant fill out a tax form?
Excellent column. Mental labor is not only a type of labor, but it is the most valuable kind of labor.
Similarly buying a property and doing ZERO with it and then reselling later for a profit for no reason other than the luck of having the land values rise because some other (real) investor busted his hump and developed a golf course right next to it is simply unearned.
GL is a plant. She shows how bad our Educ system is. By buying property you are doing something. You are taking a risk. Ask your neighbors about their property value now compared to 2006. Liberals don’t understand the concept of risk.
Yes, you’ve got it. And think about things this way:
Say you buy a house to flip for $100K and it goes up to being worth $150K according to the local market – and then housing market crashes before you sell it and the actual value of the house goes down to $90K. The government then does not come after you for the $50K in “income” you had theoretically at one time when the house supposedly was worth $50K more than you paid for it. With stock investments and mutual funds that happens all the time.
And now we see why flipping houses was so popular as compared to making real investments in the overall economy. From the tax standpoint there was no downside to flipping. You could make money or lose money but you could not be taxed on the money that theoretically was there at one time but that you never actually got in your pocket.
#24 — By buying property you are doing something. You are taking a risk.
Absolute nonsense. I have a property I bought for $5k or so years back to put a cabin on in the woods. There is where I can hunt and fish. If a dino hunter locates a rare triassic beastie on the property and BigMuseum Inc wants to hand me $50k for it, this is unearned. Risk assumes intent. I have no intent for that property other than fish. I didn’t buy it hoping for a dinosaur.
Using your inane definition, you are “risking” because you bought a can of green beans. If you find a worker’s lost $1200 diamond ring in a can, that’s unearned. You didn’t RISK the 79 cents to buy the can with the INTENT of finding a ring.
Risk is when you buy something with the express intent of profit, such as buying a property to flip or land in hopes that the electric utility will want to put a plant on it.
Do you take classes in how to make yourself look ignorant?
As to investing in property carrying no risk, tell that to the millions of people who are upside down in their mortgages. And no, the vast majority of them didn’t buy in hopes of making a profit.
Risk has absolutely nothing to do with the desire to make a profit.
Spend some time learning what words mean. Then come back and re-join the conversation.
Other sources of risk.
Perhaps somebody opens a pig farm next door to your land, rendering it unusable for fishing.
Perhaps you find that the fishing stream is drying up, so that it is no longer useable for fishing.
In both these instances, the value of the land will decrease. Perhaps markedly.
Perhaps the day after you buy the land, you find out that another piece of property, twice as good has become available, but since you’ve spent the money, you’re stuck.
Life is a risk, you can’t define that away just because you want to hold fast to your liberal mythologies.
While I do not wish to be as harsh as “markthegreat,” I do want to point out that Mr. Alston is using a terrible definition of “risk.” For example, you rent your apartment with the “risk” that it will burn down. You certainly don’t want it to, you don’t intend it to, but there is that risk. Another example would be driving: you risk death and great bodily harm by driving, especially on I80, but you don’t *intend* to die every time you drive. For a final concrete, your stream may turn out to have a brown snail darter, and the EPA will forbid you from fishing in it or “disturbing the habitat,” making the property worthless for your purposes (or any other). This is not something you intend, it is (probably) not something you even had in mind when buying the property, but it *IS* a risk you assumed.
So, while you may not be informed of all the risks you are assuming in an activity, you may not intend to undertake those risks, you are in fact assuming those risks. When you operate in the world, you assume the risks of the world.
The only unearned income I can think of is the money won on the Powerball or Lotto.
There are plenty of people with unearned income: politicians. No one can be worth tens of millions on the legitimate salary of an elected or appointed official.
Nit-picky taxes on this and that form of income; different, and/or special rates of taxation for special people or special organizations, or income from “favored” forms of investment – this is all intended to create confusion and exhaustion among the taxed class and conceal the real and final goal: wealth taxes. People of the taxed class need to internalize the fact that government has an insatiable and rapacious greed to consume all the fruits of their efforts, and will do so if government “mission creep” is not fought back constantly. A vote for limited government is a vote for your pocketbook. My assessment could be wrong, but I don’t think so.