Capital gains is money earned from investments. Just like any money earned (such as wages), you get taxed on this (surprise surprise). The difference is that wages and capital gains are taxed differently. For a chart of 2020 rates, see here
(scroll down to 2020 Long Term Capital Gains Tax).
Basically, capital gains tax rates are either 0%, 15% (>$40,000), or 20% (>$441,450). That means if you earned $1M from capital gains this year, $558,550 of that would be taxed at 20%, $518,550 would be taxed at 15%, and $40,000 would be taxed at 0%. Your total tax would be $189,492.50, which is close to a 19% tax rate.
What tax bracket were you in this year? If you’re single and make more than $40,126, your tax bracket is at least 22%, and that can go up as high as 37%.
Most wealthy rich millionaires make most of their money via capital gains and not wages.
So you’re probably thinking, this sounds pretty unfair, right?
Let’s give the investor side some consideration.
Welcome to capitalism, where the engine of growth is fueled by investments. Without investments, there’s no risk-taking, and without risk-taking, there’s no opportunity for reward. If capital gains is taxed highly, then that means there’s more risk in investing. Which could lead to there being less investments, which could slow the economy.
Biden’s intention is to tax the rich to fund his $2T infrastructure plan. The real question is whether or not the investors can do a better job of spending $2T or if the government can do a better job.
And it’s not a straightforward answer. Depending on your views, your answer can differ significantly from that of your neighbor.