It's totally unfair. Unfortunately, the reality is that capital is highly mobile while labor is not. In an ideal world, capital gains would be taxed much higher than income from labor. However, is too easy to moved the capital to a place where it's taxed at a lower rate.
A good solution would be a flat tax plus a prebate. Tax all income at 15% regardless of the source, with no tax breaks or exceptions. The first $50k or so is tax free, and that could be handled as a prebate where everyone gets paid (taxRate * floor) by the govt[0]. This would be much more progressive than the current system and vastly simpler to implement and enforce.
Looking at the current capital gains rate is actually too rosy, since there are so many loopholes and exceptions that wealthy people can use to bring the rate down. The actual effective tax rate billionaires in the US pay is below 10%.
I doubt something like this will ever happen given how many selfish interests would fight against it. It sure would be great though if middle class workers didn't pay a higher tax rate than millionaires.
[0] I'm throwing out round numbers but have seen research that backs up figures in this ballpark.
Also the deductions arbitrarily denied to individuals. Use a car to drive to your W2 job? That's "commuting" and thus not tax deductible, despite it being utterly required for earning that money.
I'd say the amount of rent paid in proportion to time working (+supporting activities) divided by time awake should be fully above-the-line deductible, yes.
The point is there are many such deductions that businesses straightforwardly take, that natural persons are told it's all "personal use", despite them being directly necessary to sustain person-as-an-economic-actor.
I guess I somewhat agree in principle but an indiscriminate tax cut/deduction/universal income would be a much better approach. Easier to administers and much fairer.
I'm torn on this, because on one hand I think keeping a record of everything you spend, sorting through it all to tally it up, and generally tracking one's life with spreadsheets is a horrible way to live. So the tax code de facto requiring that is oppressive.
But on the second hand (and this was my main point here), these are deductions that businesses already get to take. Get routinely paid on a 1099, and see all the deductions you can take essentially by virtue of now "running your own business". It's obscene. Perhaps set up an LLC+S-corp for even more.
But on the third hand, I get the argument that if we just eliminated business deductions in general, that "thin businesses" would be impractical.
Ya let's jump on people making a point with a completely different topic. If you want to increase the price of commuting, raise the gas (/electricity) taxes. That's orthogonal to my point. If you really can't fit this topic in your head without being distracted by OMG CAR, then replace "car" with "subway pass".
The point is that in the business context, expenses required to create income are deductible. If you get paid on a 1099, you get treated as a business and can take those deductions. You can even claim a section 179 accelerated depreciation, and immediately deduct half of the capital expense.
Fair enough. It's fully deductible when used to offset capital gains as far as I know.
To offset regular income, it's only $3000 a year but losses can be carried forward (though it stays at the dollar value, no inflation is taken into account).
So often largely deductible with some caveats.
It still seems asinine that bad investments are essentially tax subsidized, but whatever.
The most blatant thing for me will always be the tax code.
Alone way that W2 income vs long term capital gains is taxed (not to mention that losses are fully tax deductible) makes the message very clear.