Income Inequality

[Jenny A]

How does income tax effect the rich? They already have money. It's not like they are working a job paying income tax.

That's pretty simple.  Interest is subject to income tax.

I have saved some money on which I'd like to retire on in about twenty years.  If I bury it in the back yard, it won't be worth much in twenty years.  Because of inflation (even the low levels of inflation we have now) it's value shrinks unless I invest it.  In a bank account the interest I earn on it is less than inflation, so the value of my money shrinks.  Yet I still get taxed on the interest. In the stock market (mutual funds in my case) it actually grows a little beyond inflation though I do have to put up with some risk of loss.  If you tax the income on my savings whether it be interest, or otherwise, I either gain less, or the real value of what I have shrinks more.

I could put it into something that appreciates but doesn't accrue income tax on the appreciation like real estate, except that when I sold it to retire, I have to pay taxes on the appreciation then.  Oh, and property taxes now.  Taxes are pretty hard to avoid.

If I were really wealthy, my problem would remain the same.  

What Reagen did was reduce the % owed in the top income tax bracket and reduce the amount owed on capital gains. 
The very wealthy benefit from both.  Those saving for retirement benefit from reductions in capital gains and taxes owed on interest. IRAs and 401Ks provide some tax relief for retirement savings.

That's why flat tax proponents are usually wealthy.  They want to tax earned income only and not interest or capital gains.