Investment income

The two main tax advantages for rich people are capital gains and maxed out social security contributions. Compare a person working for wages earning $180,000 per year vs a rich investor earning $2 million per year from investments. The person earning $180,000 will pay $34,000 in federal income tax and $9,000 in state income tax plus $13,775 in social security and Medicare tax leaving him with $133,000 or 73% of his gross. The capital gain tax on $2 million is $369,000 leaving him with 82% of his gross. This is because there is no social security tax on investment income. A single person earning $180,000 per year from investments only would pay $20,317 in total taxes netting him $160,000 or 88.7% of gross. This is why Warren Buffet once said that his secretary pays a higher tax rate than he does.