If it can be used, then it can and will be abused too.
Meet capital gains taxation.
Capital gains or investment income has been taxed at 15%. Since this is money that should have been taxed fully as earned income once, the tax is reduced.
Let me quickly state my view of USE - ABUSE - A SOLUTION
USE:
To my way of thinking this a method for the average American to buy a house, start a family, move into a bigger home, the American dream. But if the profit on their home is taxed at earned income rates that can keep a family from making that traditional All-American move toward middle America. Buying a larger home for a growing family, that is America.
Just as important, that same family will want to sell that house once the kids have moved out. They want to sell and retire. They should be able to retire with a little nest egg. It is good for America.
ABUSE: (I have nothing against rich people - I wish I was rich!)
When those that have incomes in the millions and pay nothing more than 15%. There are those few that make over a billion dollars and pay simply 15% minus deductions and loses. I know that last example is rare but I am making a point. Although legal, it is an abuse of the tax burden of the nation.
These two groups of taxpayers
vary as much as a bunch of Scout Leaders vs. the Hell's Angels.
The average American can teeter on this difference. The rich American will just add more zeros to their lightly taxed monster income. Again I would love to have a monster income.
We are about to get a number from Congress. The income cut-off for the expiration of the Bush tax cuts. $250,000 $400,000 and $1,000,000 have been used.
A SOLUTION:
Currently the average income is $50,000/yr. To be generous to both the Scouts and Hell's Angels use a number equal to 20 years of income - currently that would be $1,000,000 Say what you want ,if you are making 20 years income in one year, you are doing well my friend. So:
The first million is taxed at 15% and above that is taxed at 25%.
Remember this is for Capital Gains only. If minimums are set as suggested by Warren Buffett for overall income ... well that is another issue all together. If the capital gains rate is raised across the board it will hurt the Average Joe most.