> So the government gets to re-tax most of that money when you use it to hire someone to build a new business with you.
You should consider it also from the point of view of the employee. The government taxes your employee to offer him services, it does not care who hires him (you, that saved the money).
Yes, it is true that you need lots of money to HIRE someone, but you can try to do a startup with a couple people that live from their savings for a while (so, not paying themselves a salary, but having shares) which avoids the tax situation as first.
I think we are quite bad to assess how was life around 1900 in terms of infrastructure (in any country) - so yes, probably people paid less taxes but lived in much worse overall conditions.
True, you can try and do a startup without hiring anyone, but how many companies with no paid employees succeed or bring in a net profit? You can do that until you need to hire someone, then you still hit the end of the road.
Forget who the government is supposed to be taxing for what supposed purpose. The decision about asset and income law working differently (liabilities counting for one and all sources being able to intermingle over the financial year, financially speaking, for assets - with income always being payable within a month) is why these taxes work differently in practice then just one being for income, and one for personal asset (accrual). We could instead "tax an employee to offer his services" with a tax which allowed them to discount the liability of savings spent in businesses from their due tax from other sources, or we could charge higher capital gains than personal taxes.
If you earned the original income from renting out properties or capital gains however and then invested it, you can write it off as a loss for your overall individual capital gains, pay $0 for all your rental/share increase in value, and only pay for the startups employee, with no tax on your original income as a result that tax year.
If you have asset wealth, you don't get taxed twice like this as you can write it off. If you have income based savings wealth, you always get taxed and can't count it against investments you make.
1900 is obviously different but income taxes help people with assets retain them for the reasons mentioned above. If Assets were taxed at a higher rate and you could not personally include liabilities in your capital gains (as with income), then it would be the opposite scenario.
We say capital gains tax is all about wealth, but it's not: The US has no wealth tax. The capital gains tax is just lower tax on unearned income and the ability to intermingle that income. It's all income at the end of the day - just one, income from work, the government taxes heavily, the other, the government taxes less heavily, but most people never significantly earn that income.
You should consider it also from the point of view of the employee. The government taxes your employee to offer him services, it does not care who hires him (you, that saved the money).
Yes, it is true that you need lots of money to HIRE someone, but you can try to do a startup with a couple people that live from their savings for a while (so, not paying themselves a salary, but having shares) which avoids the tax situation as first.
I think we are quite bad to assess how was life around 1900 in terms of infrastructure (in any country) - so yes, probably people paid less taxes but lived in much worse overall conditions.