>Does this definition of income include "capital gain" which is a major/main source of additional wealth for the already wealthy and is taxed at only 15%? Some of the richest people I know don't bother to pay themselves any income at all these days.
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>There are also a lot of middle class people that pay 15% captial gains tax. Does your model of "fairness" include taxing our ( the middle class) captial gains at more than 15%? If not, where do you draw the arbitrary line for paying more than 15% captial gains? $250,000? $500,000, $1,000,000?

There have always been arbitrary lines in tax rates. The principle has always been that tax rates should be progressive based on income, so the lines have to be drawn somewhere. Well, unless you consider it fair that the rich should pay the same rate as the middle class and everyone else. You can spin it any way you like but a flat tax system boils down to "the rich pay less and everyone else pays more."