In 2007, the 400th richest person in America made $138 million while in 1992, the 400th richest person made $24 million. What do most of these people do? According to the IRS, which released 2009 data from the 400 richest individual income tax returns, about 50% of the 400 richest people in America made their income from capital gains (stocks, property, and profit from the increase in value of their investments). Less than 10% made their wealth from traditional wages.
Interestingly, the tax rate on capital gains had been decreasing over the last two years. In 1990, the capital gains tax rate was 28 percent, 20 percent in the latter half of the 1990s. and 15 percent under George W. Bush. This is one of the reasons why the average income of the “Fortune 400” grew by 650% between 1992 and 2007 while the average salary did not double. Also, this group of top earners is paying taxes today at just over a third of the tax rate they paid in 1955.
Conclusion: If you know what you are doing, investment in capital gains can be extremely rewarding. Check out how to make money in the stock market!