Lately I've heard the argument that the rich are paying a lower effective tax rate than the poor used quite a bit. And while that is true, there is a very good reason for that. Here's why there is nothing wrong with the rich actually paying a lower effective tax rate than the average worker. And no, it has nothing to do with the fact that 20% of the wealthiest Americans are already paying for 70% of all federal taxes. (Although that is also true. ) [ame=http://youtu.be/H8f59IuijFo]RTS: Thomas Sowell vs Occupy Wall Street and Obama - YouTube[/ame] -- For those that would rather not watch the video -- Most of the income earned by the wealthy are capital gains, and not taxed at the same rate as regular income because they aren't present at any given year. For example, you may have stock options that have been accumulating for 5 or 10 years. The year you cash these out, your income will spike up. But only for that year. Capital gains tax takes into account that the income you've just cashed out on has been earned throughout a period of time. Which is why it is taxed at a much lower rate. Combine that with the income they earned that is taxed at the highest rate, and that's how you have the rich paying a lower effective tax rate. Which in reality, is perfectly fine.