There are essentially two kinds of people in a free market economy - entrepreneurs and workers. Both are needed, though there are generally more workers than entrepreneurs. People are free to be either, and to move between the roles if they want to.
Workers sell their labor and skills. They take relatively little risk (beyond the risk of unemployment), because they get paid their wages whether their employer does well or not. They invest little beyond their time, except perhaps for some investment in training or schooling to prepare them for the job. They depend on someone else to provide the job for them, as well as any capital equipment (machinery, supplies, etc) needed for them to perform the job. And in general they can go home at night and forget about the business until the next day.
Entrepreneurs create jobs for themselves, and sometimes for others as well (employees). They invest their own capital, and perhaps borrow capital as well, to start a business around an idea they think might be marketable. This is essentially the same whether it is a poor tailor in India buying a used sewing machine and some cloth, or Intel investing a billion dollars in a new microcircuit plant. Entrepreneurs (and their investors, if any) take all the risk, and that risk is considerable since only two-thirds of new small businesses survive at least two years, and just 44 percent survive at least four years, according to a study by the U.S. Small Business Association. In return for taking that risk, they have the potential for large rewards. Entrepreneurs in general work hard, and worry a lot about meeting the payroll, and can’t just go home at night and forget the business. (Trust me, I know. I have been both, and being an entrepreneur and business owner is a LOT harder!)
There is of course a middle ground, people who work on commission. Someone else provides the job, and perhaps a minimal wage, but mostly they depend upon their own hard work and skill to earn commissions on their sales. Real estate agents fit this model, as do many waiters, who may depend on tips for a substantial portion of their income.
Now a free market needs both workers and entrepreneurs, but it is the entrepreneurs who are most essential, as well as the scarcest. Without entrepreneurs there would be no jobs for non-entrepreneurs. So one wants to be careful about penalizing successful entrepreneurs too much with confiscatory taxes. The job is already risky enough without limiting the potential upside. There has to be the promise of possible riches to encourage people to take the risks and invest the hard work and risk their savings on a new business.
(Note, by the way, that few corporate CEOs qualify as entrepreneurs; most are just overpaid employees. Sam Walton and Bill Gates, people who actually started and built their businesses, are examples of true entrepreneur CEOs who created whole industries and thousands of jobs. Most corporate CEOs are just employees who gamed their way into an overpaid position originally created by someone else.)
So in a free market economy, politicians need to restrain their natural populist ardor for ”taxing the rich” entrepreneurs, even though it plays well with the workers. In general, it is entrepreneurs who are providing the worker’s jobs in the first place, so one doesn’t want to discourage their risk taking.
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