Capital investment is discouraged, but it's not as if it's going to stop due to this discouragement. What are people going to do with their money, NOT invest it? Found their own companies instead? Acquire capital assets and lease them? It's not as if you can work _instead_ of capital gains, cap gains income is passive.
Capital gains taxes in the US have been higher in the past, and at several points, were higher than wage taxes are now. Things worked out fine.
I build a company. Work my fingers to the bone for years, and take a significantly reduced salary compared to my market value. Later I sell it for a billion dollars.
That is taxed as long term capital gains. Are you saying that’s passive? Sure, you buying a few shares of Ford is passive, but tons of capital gains like in my example are not.
Also, you comment “that came out fine” is rather flippant. When you dominate the world after a world war, pretty much everything is going to go your way, whether you tax income at insane rates or make black people drink from separate fountains. Both occurred in the same time period. If you use you’re argument that “things worked out fine”, why not also keep that around? I think the reason is we’ve managed to see that correlation doesn’t drive our decisions there. And they shouldn’t in taxation either.
#1 You’ve just discouraged capital investment.
#2 you’ve just agreed with my initial statement that there is a reason carried interest is taxed the way it is. If you tax capital more than labor, then by definition, carried interest is fine, because the people who pay it ARE THE PEOPLE DOING THE LABOR!!
Seriously, I realize that this is an emotional topic for many people, but you have to think through the second order effects. The first effect is pretty simple, but in this case the second order impacts have all sorts of ramifications.
I’m fine with people having their opinion and feeling that something is right or wrong - that’s healthy. What’s not healthy is having an opinion that is either self-contradicting, or made out of frustration.
Think through the scond order effects. Harry’s gave a great exam-let that showed just one simple version. There are tons more.