July 26 (Bloomberg) -- Democratic presidential candidate John Edwards offered a tax policy aimed at narrowing an income gap that he said is ``wider than at any time since before the Depression.''

In a speech today in Des Moines, Iowa, Edwards proposed raising the top tax rate on capital gains to 28 percent from 15 percent and increasing income taxes on families earning more than $200,000 a year to make the tax code more fair to lower- income workers. The increased taxes would help pay for tax-free savings accounts and expanded tax credits for lower-income workers.

``It's time to restore fairness to a tax code that has been driven badly out of whack,'' Edwards, a former North Carolina senator, said in prepared remarks released by his campaign. ``I will rewrite our tax code to make sure it is fair.''

Edwards has made the gap between the rich and poor a centerpiece of his campaign since announcing his candidacy in December in a low-income New Orleans neighborhood destroyed by Hurricane Katrina. He has also proposed providing medical care for the 45 million Americans who lack health insurance.

Edwards has said that his ambitious domestic programs will require tax increases, such as repealing President George W. Bush's 2001 tax cuts for wealthier Americans.

``The top 300,000 income earners in America now make more than the bottom 150 million combined,'' Edwards said today.

In an interview after the speech, Edwards said his tax benefits targeting lower-income workers would help expand the middle class and boost the economy.

Estate Taxes

``The way to grow the economy over the long term is to strengthen and grow the middle class, and Wall Street will benefit, and investors will benefit from that,'' Edwards said.

The plan Edwards outlined today would eliminate estate taxes for middle-class families and small businesses and estates worth as much as $4 million. He also said he will ``declare war'' on off-shore tax shelters and end the practice of letting some private-equity firms and their managers pay lower taxes on their profits.

For lower-income workers, Edwards proposed setting up tax- free savings accounts and matching the first $500 saved. He would expand tax credits for child care to cover as much as $5,000 in expenses and increase tax credits for low-income workers.

The plan would also exempt from taxes the first $250 in investment income earned by lower-income families.

Tax Investments More

The 28 percent capital gains tax would apply to families making over $250,000 a year. For families making under that amount, the rate would remain 15 percent.

Edwards said his changes to the tax code would ``reward work instead of only wealth'' by lowering taxes on wages earned by lower-income workers and increasing taxes on investment income of wealthy Americans.

``Our tax code has shifted most of the burden onto the backs of working Americans,'' he said.

Edwards is the first Democratic presidential candidate to offer a new tax plan. Senators Hillary Clinton of New York and Barack Obama of Illinois have endorsed proposals to make private equity firms and their managers pay higher taxes, something also being explored by Congress.

To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net

Last Updated: July 26, 2007 15:54 EDT