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Why is investment income taxed less than wages?

Published: Thursday, Sept. 3 2015 8:18 p.m. MDT

This image released by the Romney presidential campaign shows the front page of the estimated 2011 IRS 1040 tax form for Republican presidential candidate former Massachusetts Gov. Mitt Romney and his wife Ann. Romney's tax returns tell the tale: Yes, he's rich _ really rich. His returns, spanning more than 500 pages and released under political pressure Tuesday Jan. 24, 2012, represent an extraordinary financial accounting of one of the wealthiest U.S. presidential candidates in generations, with his annual income topping $20 million.  (Romney Campaign, Associated Press) This image released by the Romney presidential campaign shows the front page of the estimated 2011 IRS 1040 tax form for Republican presidential candidate former Massachusetts Gov. Mitt Romney and his wife Ann. Romney's tax returns tell the tale: Yes, he's rich _ really rich. His returns, spanning more than 500 pages and released under political pressure Tuesday Jan. 24, 2012, represent an extraordinary financial accounting of one of the wealthiest U.S. presidential candidates in generations, with his annual income topping $20 million. (Romney Campaign, Associated Press)

WASHINGTON — Why do Mitt Romney and other wealthy investors pay lower taxes on the income they make from investments than they would if they earned their millions from wages? Because Congress, through the tax code, has long treated investment more favorably than labor, seeing it as an engine for economic growth that benefits everyone.

President Barack Obama and the Occupy Wall Street movement are challenging that value system, raising volatile election year issues of equity and fairness.

The U.S. has long had a progressive income tax, in which people who make more money pay taxes at a higher rate than those who make less. But for almost as long, the U.S. has taxed capital gains — the profit from selling an investment — at a lower rate than wages.

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