wait, dont jump any steps here. So you leverage your assets and borrow against them. For what purpose if not to generate a positive return. And here we are at the question how to tax that return. Where am I getting the math wrong here?
You still are not getting it. That is my point, there is no "additional dollar" The rich leverage their net worth through debt. In other words, they convert income into debt to create leverage of existing assets. So there is no income, only an asset. I know there is hard to understand and maybe I'm being too big of a dick here patronizing you for it as honestly most Americans don't understand this. But debt in the financial world IS an asset and that asset has different income generating qualities then equity. The top 1% earn practically ZERO income so there is no marginal income to tax. You see here is what you need to get your head around. Income, as you understand it, only has value to those who need cash flow in the present to meet expenses. If you don't need that cash flow, there is absolutely ZERO benefit to creating a cash flow. So any cash flow that does exist is converted into debt wiping out the short term taxable cashflow. Why do you think rich people own 15 properties all over the world. Most of them will never step foot in those homes, they bought the homes to create a debt or obligation. The debt in this case IS an asset and the interest on that debt is tax deductible against any short term cash flows.
I know this is confusing but this is why people get paid bucks to learn and understand the math and optimize assets to create maximum value.