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It's not that their salary is peanuts, it's that their salary is peanuts compared to what they make on the side. More than half of them are millionaires, and none of them got that way on a government salary.
I'd clutch my pearls, but I can't afford any... *Grips bedazzled medical bracelet*
Part of that reason is that campaigns are so expensive and take up so much time that anyone wanting to run for higher office has to quit their job and probably donate a lot of their own money to help fund it. It keeps lower-income people out of office.
One solution I could see would be a stipend for anyone who got enough signatures to be on a ballot. That would still require the candidate to spend significant amounts of time campaigning to get those signatures, but they could likely still hold a job while doing it.
In Spain having a seat in Congress or Senate means having part of the expenses of the campaign paid by the State. If you don't spend too much and get enough seats you get all your money back.