Reply #4: The entire tax structure needs an overhaul but i really like your analogy.

[A HERETIC I AM]

I remember hearing years ago a TV interview with a guy that lived in Amsterdam. When asked about the American concept of "Unearned Income" he laughed and said that gains from investing - putting money into that market that helps companies grow - is absolutely earned income and found that American idea of Earned and Unearned income curious.

For the purposes of clarity, it should be noted that if you buy a stock on January 1st at $10.00 a share and on December 31st it is at $15.00 a share and you sell, you have short term capital gains of $5.00. The IRS says if you hold that stock for at least 366 days and sell, it is long term. The difference in tax rate is typically 35% (short term) vs 15%.

I think the limit or threshold should be lowered to the $250,000 AGI range and for short term gains lowering the rate to 30% and for long term, raise the rate to 20%. This would encourage investors like yourself and only slightly change the tax rate for those in the higher income bracket. The higher the AGI, the higher the rate of long term gains taxation. I would be interested in seeing how much more revenue such a change would generate for the Treasury.

I also think there needs to be a serious change in the way the income produced by an LLC is taxed.

On edit to say the above sounds confusing to me and i typed it! I am by no means a tax expert and that is why.
What i am trying to drive at is if a person makes more than say $250,000/yr in wages, they should have to pay a higher rate on their capital gains. The rate should be on a scale - the higher the AGI, the higher the cap gains tax rate.