Inflation. Inflation is one of the two reasons capital gains should be different. You can make a large profit in nominal terms while making a real loss if inflation is high enough. This is not a risk with non-capital gains income.

The real reason capital gains taxes are a bad idea is that they discourage investment and we want more of that because it’s how we increase our productive capacity and get more of what we really want, consumption.

We should abolish income and capital gains taxes altogether and tax consumption. Encouraging investment by ceasing to tax it will lead to higher production and consumption in the long run.