Campaign Issues Dems Can Do Better On - Capital Gains Taxes

Virtually every Democratic candidate advocates some increase in the Capital Gains Tax.  

Is just tinkering with the rules rich folk made that primarily  benefit themselves really the best we can do?  Is it so important for them to pad their wealth quicker we tolerate working folks paying often twice as much tax on their income?

I want to hear a candidate say "income is income, we are abolishing the special rate for Capital gain.  You can adjust your gain for inflation, but what is real gain is taxed just like any other income."

Background:  

A capital gain occurs anytime you buy an asset, then turn around and sell it at some later point and make a profit. 

When our income tax was enacted in 1913 it made no distinction between Capital Gains and other forms of income.  That changed in 1921 when Republicans had control of both houses of Congress and we had a Republlican President.  They competely revised the 1913 income tax law, dropping the top tax rate from 73% to 25%.  But they also created a special catagory for taxing capital gain, setting the rate a 15%.

The justitification for creating a special rate for Capital Gain was a fundemental difference between wages and capital gains.  Wages are paid for work right now.  But capital gains are gains accumulated over time. For example if I bought a farm 40 years ago for $300 and sell it today for $3000, that extra $2700 might be in part, or all, simply inflation.  When corrected for inflation there really is no income, I'm just getting back what I paid for it so I shouldn't be taxed.

The logical solution in 1923 would have been to create inflation tables so when you sell something you do a little math to figure out what percentage of the gain is inflation and then the rest would be treated like your other income.

But Congress didn't go that route.  Instead they created a seperate tax, with rates much lower than what folks pay on wages.  Often there has been two rates, one lower rate that applys when you hold the asset more than a year, and a higher rate when you flip it in under six months.

This was, in 1923. essentially one a companion gift to the wealthy to go along with dropping the top tax rate from 75% to 25%.  Now if there income just flowed to them through their accumulated wealth they only had to pay 15%.  

It was a real boon to Wall Street, it made speculative investment vastly more profitable.  I don't think it was an accident the 1929 stockmartket crash came along 6 years later.

In the intervening 90 or so years since the 1920's the Capital Gans tax rate has fluctuated, going down when Republican's are running the show, and going up when Democrats run the show.  But the disparity between taxes on wage income and taxes on Capital Gains has remained.  The Capital Gains tax rate has never been higher that 28%, and that was when the tax rate on wage income was over 70%.  

The low Capital Gains tax rate has played a big part in the boom and bust nature of the housing market and wall street over the last 30 years.

I've heard my whole life the low capital gains rate incentivizes investment.  

Seems to be baloney to me.  I sometimes trade stocks for myself.  When I make a profit and sell my stocks it's not incentivizing anybody to start some new enterprise.  It doesn't create new wealth, it simply reallocates a little bit of existing wealth.  In most circumstances its hard to distinguish from winning a bet when you are gambling.

In the last couple decades I've known a lot of smart people who stopped making things or offering services for things because they sit at home and trade stocks.  They might make more money if they were working, but because their income is capital gains they pay less taxes.  In my experience low capital gains rates often incentive productive people to divert their energy into speculation.

I believe we would have a stronger, fairer, more productive economy if we stopped incentivizing speculation with low capital gains taxes.  I would welcome any data folks have that contradicts my view.