Among all of the other loopholes and vast deductions, capital gains (typically income from investments) are taxed at a lower rate than occupational income.
Warren Buffett's effective tax rate is lower than that of his secretary. Some try to dispute that, but they take an average general secretary salary instead of an Executive Assistant salary. I hear Obama is in the same situation with his secretary (or in the past has been). Any m/billionaire who wishes to pay more tax can simply cut a check, stop taking deductions and using loopholes, and stop settling out of court to pay a lower amount than what is legally owed.
The mythical distinction: capital gains are from invested income already taxed (true) giving gains that have already been taxed (not on the earner, but the corporation has been taxed).
Problem is that trying to make this distinction as an argument against capgains' being taxed the same as occupational income is that corporations are taxed completely (barring loopholes and cost of business deductions, etc). So this argument would have to concede that all occupational income should be taxed at the capgains rate, as it has already been taxed when earned by the corporation.
The person who cannot afford investment on a large scale and has a low-rate savings account or CD gets taxed on all interest income the same as occupational income. Deductions and credits might allow all or some of this tax to be returned.
The rate cut for capgains investing is an "incentive" to keep the wealthy investing so that the economy keeps going. Some argue that rich investors would all stop investing and go into bonds. This all-or-nothing view is as ludicrous as it is simple-minded. The capgains are so great on the investments with high yield (especially in the artificial futures such as oil) that the wealthy would do well to keep investing and pay a little more tax. The rate of loss deduction might be raised to alleviate some trepidation (barring complete overhaul to better tax code). The wealthy obviously would not go to bonds because the return does not account for inflation and they would be lucky to just break even.
All tax cut "incentives" are really subsidies, even if the gross money was 100% the taxpayer's money originally. Call it what you will, "investments," etc. The savvy investor is far greater than the government could ever hope to be at choosing what to invest in, barring inside gain on losers and short calls, etc.
That brings us to the next post which will be about gas (petrol) and alternative energy.
