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If I own a bunch of market funds which hold securities from secondary capital markets (stock and bond markets), am I partaking in unearned income/economic rent?

Let me clarify what I my question is NOT about:

  • It is NOT about IPOs. I know that when you trade your capital for ownership/debt that is providing productivity and value to the economy and cannot be considered unearned.

  • It is NOT about active management and trading where your actions provide efficiencies and price discoveries which provide valuable information and also is not considered unearned.

I am specifically talking about those who have their savings in a market fund (who bought their holdings off the secondary market) and provide basically nothing while they earn income/returns.

Is this thinking correct? Would this be considered unearned income?


Separate from but related to this question is: are capital gains taxes the same as corporate taxes? If they are different, and if the answer from above is "yes, savings held in secondary capital market funds are a form of unearned income", then wouldn't capital gains taxes be an efficient tax?

My thinking is that because taxing unearned income doesn't deter people (taxing a lottery winner won't stop them from claiming their prize), then taxing their capital gains seems to not have any effect on the saving rate of people.

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  • Hi, welcome to economics.se. Questions of personal finance belong to personal finance and money stack – 1muflon1 Apr 12 at 17:59
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    I think the root questions ("is this an efficient tax", "does it affect the savings rate") are more macro-economic questions than personal finance, so I'm voting to move this back to economics.se. – D Stanley Apr 12 at 18:45
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Is this thinking correct? Would this be considered unearned income?

Yes. At least for US federal tax purposes.

are capital gains taxes the same as corporate taxes?

No. They are governed by different part of the tax code (again assuming the US federal tax)

... then wouldn't capital gains taxes be an efficient tax?

That really depends on how you define "efficient" vs "inefficient" tax.

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