Differences between the tax rate on earned income and the rate on income generated from capital gains has lent some success to President Obama’s envy-the-rich campaign. It has given Democrats the edge in demagoguery by implying that billionaires like Warren Buffett are taxed less than their secretaries. Never mind that Buffett’s total tax in actual dollars is likely several thousand times as great as his secretary’s.
As a sound bite, this inequity does sound unfair. But there are valid reasons for this difference in taxation rate, and they are connected to job creation. Taxing capital investment at lower rates encourages savings and investment, the lifeblood of economic growth and full employment. In addition, it keeps the wealthy investing instead of seeking tax shelters for their income and savings.