Obama head just now in his tax raising Buffet speech said:
“Explain why someone making $50m in financial markets is paying 15% in taxes while a teacher making $50,000 a year is paying more than that.”
Ok, we at econoLOL will make this very simple. A hedge fund manager at a bank, or a millionaire like Buffet puts their (previously taxed) capital at risk to earn a return on investment. There is quite the possibility that an investment they make with their (previously taxed) capital could go to zero. These capital investments could be wiped out and worth nothing.
Our schoolteacher in this example, however, earns a wage, that is not subject to risk (sans losing her job). Her capital is not at risk – show up, get a paycheck. Therefore when she earns this, her earnings is taxed as income. If she is then taxed, she can then choose to invest this remaining (previously taxed) capital, just like these evil millionaires. The result of this investment could be an evil capital gain just like Buffet, and earn a return on this investment, and pay the 15% tax. Or, her investment could decline or go to zero, and she is left with nothing.
Income does not equal wages.