ERD50
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Originally Posted by ERD50
But when I run some example numbers, Capital Gains and Earned Income seem very different.
Yes, this is true.
But I think only because we're mixing up before and after tax amounts in our assumptions. With the investment you implicitly assume before tax growth of 3% and with wages you implicitly assume after tax growth of 3%. So yes, under those assumptions you end up with different results.
I think your claim that I'm 'mixing up before and after tax amounts' is irrelevant and just diverts/distracts from the point I'm making. Perhaps because you don't like the point I made? Here - let's expand upon it then:
That $30,000 worker probably pays zero Fed tax. But let us assume he pays some, and let us assume it is a consistent effective rate year-to-year (*1). We can even throw in SS and Medicare, as those would be a consistent % of wages also. So w/o digging up those numbers, just for demonstration purposes, let us say his take-home pay is $25,000. Well, it would still increase by 3% each year in my example (just from a lower base). So it's all the same as my previous example, no?
(*1) - sure, if they don't raise the brackets, and if he is near the top of a bracket, his rate might go up slightly - but it is going to be a small number. Like I said, he probably isn't paying anything anyhow. I'm giving the benefit of the doubt on that already.
Of course I used pre-tax growth numbers on the Cap Gain, because you aren't taxed until you sell (and your *real* realized gain is offset by inflation, which is the point that haha made).
-ERD50