This misunderstands the point of indexing gains for inflation, or applying a lower rate to income that is mixed with inflation. The point is that you pay tax on the income in the year it is earned (or soon thereafter). It doesn't matter what the money was earned for, whether you got a raise, or anything else. The point is that it's all money that you just got right now. It's different when you are taxed on a mix of "real" gains (in the economic sense) and inflation.
That's less true if you have hyperinflation, but at normal inflation rates ignoring inflation across the tax year is a pragmatic simplification with modest effect for gains that aren't long-term in nature (which may not exactly coincide with all income not subject to favorable taxation as LTCG.)
but our annual raise are often in line with inflation should they be excluded? what about sales tax, thats directly effected by prices going up, should that be excluded to. and what about the receivers of these payment, its the hotdog I paid for is taxed already then why should the vendor have to pay tax again? there is no end to it. this whole distinction of earned & 'gained' income is farce and created just to favor wealthy class. I home more 'commoners' see that.
> Gains from HFT would not be LTCG (held less than a year), so it would be taxed at ordinary income rates.
that may be, but my argument is that it should be taxed higher not lower for discouraging the activity. and what about the hedge funds clients that primarily benefit from HFT, should they have tax breaks for holding that capital in fund for long term?