Shouldn't our lives get a tax break?

We prepare thousands of taxes during the regular season, and I notice one common theme: the extreme ends of income earners take the most benefits out of taxes.

I notice that high income earners, those who earn or receive over $250,000 annually, also can take advantage of myriad benefits that result in a lower proportionate share of tax paid by the Upper Middle and Wealthy classes. Ordinarily, wages (W-2s) are taxed in incremental brackets (those with agi's over $250,000 are in the 33% bracket); however, the IRS has created benefits on Capital Gains, generally, the majority of income for those receiving more than $250,000, that allow income from Capital Gains to be taxed at the second lowest bracket, 15%. There has been a lot of talk about the scheduled increase to 20% on the Capital Gains tax, but little emphasis on how this compares to your average American's household income.

The average American's household income is $50,233, and the average American receives most income in the category of "earned income" or wages. Also, these households typically do not have more than 2% of income in the category of "unearned income" or investment/interest income. Currently, $50,233 would place the average American in the 25% bracket; however, compare that to the tax bracket of one of my wealthier clients whose net income is in excess of $325,000 (33% bracket if earned income) a year, but whose earned income is only about $50,000 (25% bracket) annually. If you calculate this situation using 2009's tax rules(ignoring itemized deductions to his income), this client will only pay $49,953 in taxes. Now, this number seems very high unless you compare that to the amount of tax, $81,609, this client would have had if he was taxed based on the brackets established for earned income. Though Capital Gains tax seems high, this client actually saves $31,656 in taxes over someone who actually gave his time and skill to earn a wage in a high paying job.

Earned income, reported on a W-2 or 1099 for services rendered, is taxed at a significantly higher rate than unearned income, income from money earned on money, for households middle class and above. For most Americans, we invest our time, experience, and knowledge or, in short, our lives to earn enough to afford our lifestyle; however, the government does not recognize that wages are compensation for our non-recoverable resources, our time and energy, as we can see when we look at the restrictive tax brackets for those who work for a living as opposed to those who simply invest.

Don't get me wrong, I am all for making smart investment decisions and I, too, take advantage of the slim tax rate on Capital Gains, but do I work as hard to maintain my business as I do in keeping track of my investment portfolio? Simply, the answer is an unequivocal NO. Do my employees, who invest their lives in my business, pay proportionately more in taxes than the wealthy elite of this country? Yes, even I pay proportionately more of my income than a CEO of a corporation who receives most of his "wage" in the form of stock options to avoid being taxed at a much higher bracket.

Now, that CEO may or may not have invested as much of his life into getting to where he is than, say, the teacher who works to educate our children. The average teacher in this state makes $54,333 (25% bracket) and has little to no investment income apart from his/her 403(b) pension plans. This teacher pays a much larger proportionate share of his income than the CEO; however, the real crime is the teacher inevitably uses a larger share of his/her income as a consumer. The fluidity of our economy is based on consumerism, which means that people have to spend money for the economy to grow. We could give money to the shareholders of a company, like a clothing store, which would allow them to reinvest the money in more stocks, and we would see their income grow exponentially over the years. On the other hand, we could give breaks to those who invest their lives in earning a wage, so that those people can spend their money at the clothing store, thereby increasing the value of the stock and giving the shareholders more money to watch increase exponentially. In short, does it make sense that those who invest their lives to earn a wage and spend money deserve less of a break than those who simply invest money on more money?

I pose the question now: Shouldn't our lives get a tax break?