Industry News - Regulatory Updates

February 21, 2012

Tax rates for day traders and high-earners

Income and wealth inequality will be issues of importance for some time, expert Bruce Bartlett recently wrote in the New York Times.

Presidential candidates, lawmakers and others are spending significant time and effort on the issue, with President Barack Obama suggesting that millionaires should pay a higher tax rate while most challengers favor reducing taxes in some fashion. Day traders may be particularly interested in the focus on the capital gains tax, which President Obama wishes to raise and others prefer to lower or eliminate.

Attempts to tax the wealthy could lead to a larger burden on some day traders, because their income is generally received in the form of capital gains rather than wages. Investments are a greater source of income than wages for many of the wealthiest Americans, but Bartlett notes that part of the difficulty of constructing a fair tax code is appropriately defining the different brackets.

Those in favor of heavier taxes on investment sometimes cite data such as the Tax Policy Center's report that the top 1 percent of taxpayers derive only 30 percent of their income from wages. That drops to 20 percent for the top tenth of Americans.

Bartlett states that the current tax code favors wealthy investors because such income is more lightly taxed than wages, noting that high-wage-earners are the most heavily taxed group as a result. For day traders who are not among the nation's highest earners, the tax structure could compare them to those with much higher incomes due to the method of earning without accounting for the difference in income.