Bonds also incur capital gains tax) The point of the capital gains taxes/inflation is specifically to incentivize people spending money over saving (if too many people saved money the economy would contract). It's not a perfect tool, but it works somewhat.

Income from bonds issued by the federal government and its agencies, including Treasury securities, is generally exempt from state and local taxes.

Wait, wouldn't you get taxed capital gains on a standard savings account? I'm genuinely curious even though right now saving accounts are not saving anything at all.

Tax on interest is at a different rate than capital gains tax.

Which one is higher?

I’m pretty sure that interest income is taxed, at the federal level, like wage income. In other words, at a higher rate than capital gains.

Long-term capital gains are taxed at a lower rate than ordinary income and short-term capital gains (which are taxed at income rates).

Earned interest is taxed as income at the federal level.

Oh, I know. Should it be taxed at the state level too?