Step 4 addresses capital gains and investment income under the clean-slate approach. Taxation is intentionally narrow and focused. It primarily applies to stocks and equity securities. Gains from the sale of stocks are treated as taxable income.
Tangible assets (real estate, collectibles, vehicles, art, precious metals, or other physical property) are not subject to capital gains tax under this system. Real estate is handled in Step 5. Unrealized gains (paper increases in value while assets are still held) are not taxed.
Two-category treatment
- Category A: Compensation or employer-related equity Stocks, equity grants, or other securities received as part of an employee compensation package, gifted by a business, or purchased at a discount from an employer are taxed at the time of receipt or purchase. The fair market value at grant or acquisition is included in the recipient’s total compensation for that year and taxed at their Disparity Ratio rate.
- Category B: Personal investment in stocks Stocks purchased with after-tax dollars, outside of employer compensation plans, are taxed only upon sale. The realized gain is subject to the Highest Disparity Ratio of the specific company whose stock is being sold, at the time of the sale.
Category A in practice
Once properly taxed at the time of receipt, any subsequent appreciation on those stocks does not trigger additional capital gains tax upon sale. This avoids punishing legitimate growth and value creation after the compensation has already been recognized.
Gifts and discounted purchases from an employer are explicitly treated as compensation income to close potential loopholes.
If a business is found to be using stock grants, gifts, discounted purchases, or other transfers to circumvent the Maximum Disparity Income Tax or other provisions of this system, the business itself will be held responsible for paying the taxes that would have been due on both the original value and any subsequent appreciation.
Category B in practice
This approach uses the single highest ratio within each company. It dramatically simplifies tracking and compliance for investors, brokers, and the government. Companies will be required to publicly report their highest Disparity Ratio annually, making the system transparent and easy to administer.
There are no exemptions under this system, including for retirement accounts, mutual funds, ETFs, or small investors. Previous preferential treatment for these vehicles is eliminated. Mutual funds, ETFs, and similar pooled investment vehicles will likely need to morph into new structures or entities to operate effectively under the new rules.
Labor and capital on the same footing
This two-category system ensures fairness between labor and capital income while maintaining strong incentives for productive investment in businesses. By design, it guarantees that capital income is never taxed less than labor income. It eliminates the old system’s preferential rates and complex loopholes that allowed extreme wealth accumulation with minimal tax contribution.
Because capital gains on a company’s stock are tied to its Highest Disparity Ratio, major investors and shareholders have a direct financial interest in preventing excessive executive compensation. Companies that maintain reasonable wage ratios become significantly more attractive to long-term investors. The result is capital allocation that better supports broad-based prosperity rather than financial extraction.
By focusing capital gains treatment narrowly on stocks and aligning it with the disparity framework, we restore fairness without eliminating the rewards for successful investment and risk-taking.