Why is investment income taxed less than wages?

By Stephen Ohlemacher

Associated Press

Published: Friday, Jan. 27 2012 12:00 a.m. MST

"I'm a liberal person and I believe strongly that the wealthy should pay more than the working poor," Marr said, regardless of whether the income is from investments or labor.

Obama has taken up this argument, though his budget proposals have called for only small tax increases on capital gains and dividends, to a top rate of 20 percent.

Instead, Obama has developed the "Buffet Rule," named after billionaire investor Warren Buffet, which says rich people shouldn't pay taxes at a lower rate than their secretaries. To impose this rule, Obama said at his State of The Union address Tuesday that people making more than $1 million should pay at least 30 percent of their income in taxes.

"Now, you can call this class warfare all you want," Obama said. "But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense."

The proposal has little chance of passing a divided Congress this year, and the Obama administration has released few details on how the tax would work.

Conservatives argue that increasing investment taxes would make it harder to for businesses to raise capital, restricting job growth and hurting financial markets, reducing income for people who rely on pension funds and 401(k) accounts as well as billionaires and millionaires.

"In my view the rationale for taxing capital gains and dividends at a lower rate has nothing to do with what an individual pays versus another individual," said Jim McCrery, who was a senior Republican member of the tax-writing House Ways and Means Committee when the 2003 tax cuts were enacted. "It has everything to do with the creation of jobs in this country."

McCrery now works for the Alliance for Savings and Investment, a coalition of companies and business groups that want to keep the current tax rates on capital gains and dividends.

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