Raising The Capital Gains Tax ≠ Socialism.

Not to be painted red or anything but: raising the capital gains tax ≠ (does not equal) socialism.

A friend posted an interesting story on Facebook, summarized here, it uses the example of true socialism in the classroom setting. It does a perfect job of showing us the faults of Marxist socialism, and I agree with it completely. But here is where it breaks down: The point of the post was not to warn against Stalin's communism, or Marxist socialism (or perhaps a critique on why you shouldn't live in Cuba), instead the post calls it "Obama's socialism". Now I'm not Obama's biggest fan, by any measure, but I am a fan of the facts.

The facts:
 - Democrats, including Obama, want to increase the capital gains tax above its current level of 15%. But haven't yet. Probably because of political consensus and the economy.
 - The capital gains tax is a tax on the money you make by the investment/ownership you have in a company (investment income).
 - In 2006 President George W. Bush extended the lower capital gains tax.
 - In 2010 President Obama also extended the lower capital gains tax.

If Obama were trying to raise it to 100% then I would have my issues, but he isn't. So quit fear-mongering.

Tax example: If I made a cool $2,500,000 (taxable income) in 2011...
 - in the form of a CEO salary I would be taxed at about 33.79%, which is about $845,000.
 - in the form of an investor/owner, or smart CEO who requests his pay in stock options, I would be taxed at 15%, which is about $375,000.

The everyday working person, who makes their money via wage income and who often has minimal abilities to achieve investor/owner status*, is taxed with a progressive tax. When that person moves up in the world and makes more money, they are taxed more (up to 35%). That makes sense (with some minor reservations). But here is the problem: if you make your money via investment income, then the most you will be taxed at is 15%.

What does this mean? The US tax code favors investment income over wage income. Pure and simple.

As an aspiring business owner and someone who has directly benefited from low capital gains tax, I understand the arguments - but I'm not buying it any more. Our values need to change, we need to show that we value the "average American".

This actually reminds me a bit of a Ted Talks video with the host of Dirty Jobs Mike Rowe. http://www.youtube.com/watch?v=IRVdiHu1VCc

*I know, I know, anyone can get an E*Trade account. Or anyone can get a 401k, IRA, or Roth IRA. Blah, blah, blah.
 - Fact is most people don't trade stocks on E*Trade, because they don't have the disposable income to make those kinds of bets (I mean investments, oops).
 - As for retirement vehicles such as a 401k, IRA, or Roth IRA, I do believe they should be taxed at a lower rate. These are long-term investments (real long-term, not fake 1-year "long-term" capital gains). The keyword in this case is retirement.