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Why would the government tax system at the federal and states level be set up so...

Why would the government tax system at the federal and states level be set up so that the tax rate on regular income (wages and profits) is higher than the tax rate on interest, dividends, and capital gains? Who benefits from this?

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Answer #1

The tax system has been designed in such a way that it does not burden the retirees who have interest dividend or capital gain as their only source of income . If the interest income for capital gains was kept higher it would be a huge burden on people who have retired and are no longer working.

The tax rate on regular income is higher so that the government is able to shift the burden to people who are still working and earning wages or profits. This ensures that the government still earns its revenue while keeping lesser burden on retirees than regular workers.

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