This is the right take. When you get to a certain level of income/wealth, it's all about figuring out ways to:

1. shift earned income into capital gains (e.g., private equity carry, small business earnings into equity vs salary)

2. defer taxes (401k, mortgage deductions, 1031 exchanges on real estate, etc)

3. avoid taxes (shift jurisdictions)

4. get accountants, lawyers, and lobbyists to figure out additional ways to lower tax burden

I'm not saying the government is efficient or that 100-200k incomes should be taxed more, I'm just saying that's the game as it stands. Tax expenditures are the ways the government gives (rebates?) money back, mostly to the wealthy.

My argument would not be that it would dissuade investment, but rather limit the ability to achieve class mobility in the United States. It's near impossible to move up an economic class without investment. You can only get so far by saving alone (and it really isn't that far if you are fighting inflation without any return on that cash).

But now if you tax the hell out of that vehicle, then it limits the ability to move oneself up even further.

Everyone talks like it is only the rich that invest. This just isn't true.

The most likely way one becomes wealthy in America (class mobility) is through starting a business [1]. Treating investment income as income does not change that, when existing legislation promotes reinvesting profits from a business back into a business.

[1] https://whorulesamerica.ucsc.edu/power/wealth.html

even without the bond market signals, the “dissuade investment” argument for the capital gains rate fails miserably. capital wants to be invested if there’s even one dollar to be gained over any alternatives. and no, most rich americans won’t move to vietnam or whereever just to avoid those taxes.