→ Thomas Sowell Explains Capital Gains Tax

How are capital gains different from ordinary income?

Ordinary income is usually guaranteed. If you work a certain amount of time, you are legally entitled to the pay that you were offered when you took the job. Capital gains involve risk. They are not guaranteed. You can invest your money and lose it all. Moreover, the year when you receive capital gains may not be the same as the years when they were earned.

If a country wants investors to invest, it cannot tax their resulting capital gains at the same rate as the incomes of people whose incomes were guaranteed in advance when they took the job.

It is really quite simple1.

  1. If you want more of Dr. Sowell’s explanations of economics, I highly recommend Basic Economics (Affiliate Link).