People shouldn’t really care about the difference between 15 versus 25 percentage point taxes if they feel they’re timing the market right. But if you look at a chart of redemptions and CG taxes (check Wikipedia), it turns out a 5-9 percentage point decrease occurs around 9-40x increases in redemptions during the low tax period. This is basically why you observe Republican (i.e. low tax) administrations experience traditionally low stock market prices—everyone is selling and turning their imaginary paper into cash!

Capital gains taxes are essentially the free shipping of equities. They totally distort people’s behavior disproportionate to their impact on returns, most of all by discouraging normal (retail) investors from selling when their gut tells them to, and then they bear most of the losses. Obviously a more equitable scheme would make capital gains taxes progressive instead of time based.

Just to make it clear about the article, if you made ETFs pay the taxes we’d get even more correlation and asset inflation. The best example of that is the cryptocurrency market.