Unearned income

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Unearned income refers to income that is not a wage.

It includes interest, dividends or realized capital gains from investments, rent from land or property ownership, and any other income that does not derive from work.

Unearned income has often been treated differently for tax purposes than earned income, in order to redistribute income. Such a tax structure is most often seen implemented by a socialist government. For instance, income tax on high unearned incomes reached 98% in the United Kingdom in 1979. Supporters of this say that the people who obtained this income did not work to get it and that it should be used to benefit the general population.

Some economists claim that unearned income is compensation for deferring consumption, freeing up those resources to be invested in improving the future, by funding research and development of new technologies and services, capital equipment and education to improve the productivity of labor and so forth. This view also holds that unearned income provides an incentive to save, and capital markets facilitate allocation of resources to those enterprises which will provide the best economic benefit. Extra taxes on unearned income can interfere with these mechanisms. This point of view also asserts that all income is ultimately earned, and ask why tax should be higher on work that was done 100 years ago than work that is done today.