There's actually some bizarreness in the English tax code around this. Most taxpayers are subject to a 28% levy on investment returns. Gamblers themselves aren't taxed on winnings while the house pays 15% on their profits. (The treatment of professional gamblers is a conversation for your accountant.)
The same is true of getting a raise and paying higher taxes on a "fake gain" (i.e., your effective tax rate slowly rises as each boundary shifts lower in real terms). That being said, I guess my main complaint wasn't with the inflation claim but rather with the idea that the risk/return line is somehow relevant to taxation.
What I'm talking about is the fact that you can have a nominal gain that you pay taxes on that is not a real (inflation adjusted) gain at all.
These are two different problems. The first we handle by adjusting the tax brackets every year. The second we do not handle. I suppose we could, but it would be a lot more complicated.
This doesn't make any sense. All of these things (with the exception of corporate taxes, which shouldn't exist) are priced into the return of the investment[1] and have nothing to do with taxation.
Why would you take risk into account for purposes of taxation? Should gambling income be taxed at a commensurately lower rate?
[1] More precisely, investments with a lower return are less desirable and their price tends to drop until the return (including risk, inflation, etc) is.