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We should work from the principle that all income is the same, then justify exceptions that are made. The folk understanding of tax law works that way: charitable deductions exist because they provide valuable public goods; capital gains taxes are lower because it encourages savings and investment; long term capital gains are lower to encourage "deep" investment vis-a-vis speculation; and so on. This is ultimately a substantive way of working, blind to formal structure. Should, for example, equity proceeds distributed to startup employees be taxed as normal income? It is pay; risk compensation arguments have no place, since the risk compensation is the risk multiple of would-have-been compensation. You are shifting the downside into extra upside, hopefully with a positive expected return on work. (How this differs from lotteries.)

Once we look here, we could ask whether all compensation could and should be structured in such a way as to be taxed at the capital gains rates. Why treat financially mediated sweat equity different than literal sweat equity? Should not every bead dropped from my brow be considered an implicit financial instrument entitling me next Friday? Were I given a bond or share at the end of each day, should it be subject to capital gains or normal rates? Hell, are we even sure my employment contract isn't a structured asset I could, in theory, sell and realize some percentage now? Wesee the absurdity of using a purely formal analysis of the situation: it is sensitive to the way in which income is paid, not to the underlying activity, where economic and political arguments generally lie.
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