Then why do we tax consumption and capital as well? I agree with you but feel it's more a balancing of policy to manage the complex mix of our intentions as a society.
We tax consumption because it's easy to collect, and also sometimes to discourage some types of consumption, like alcohol, tobacco or gas.
Capital is taxed in small number of countries (which is in my opinion unfortunate). However, most countries tax capital income, and if one agrees that taxing regular personal income makes sense, one should also tax capital income.
"if one agrees that taxing regular personal income makes sense, one should also tax capital income."
I don't see this as logical, because agreeing that it makes sense has nothing to do with whether it's effective or not.
Taxing capital gains reduces the amount that can be allocated into generating new wealth, which may mean lower overall tax income in the long term. I'm not saying we have it right, but that it's really very complicated.
> Taxing capital gains reduces the amount that can be allocated into generating new wealth
So does taxing any other form of income. Preferentially low taxes on capital gains favors wealth accumulation by people who already derive income from capital and, at any given present revenue level, relatively disfavors wealth accumulation by people who derive income through means which are more heavily taxed, notably labor income.
I didn't mean to suggest only capital taxes incure opportunity cost, you're right that all taxes do. I have been thinking lately as well that we have probably shifted to taxing labour too heavily, but as it is really complicated, Im sure there's a lot that I don't know that I don't know.
> Taxing capital gains reduces the amount that can be allocated into generating new wealth, which may mean lower overall tax income in the long term.
This is really true of all taxes. The tax money comes out of someone's pocket and that person may have otherwise invested the money or done some other economically productive thing with it.
