Wall Street Journal editorial: A Capital Gains Primer: 
Why a Tax Rate Differential Is Fair and Helps the Economy:

On Thursday the House Ways and Means and Senate Finance committees held a
rare joint hearing on taxing capital gains in the context of tax
reform. The timing couldn't be better because President Obama recently
restated his support for lifting the top capital gains tax rate next
year on those with earnings above $250,000 to 23.8%, or almost 60% above
today's 15% rate. If Mr. Obama's Buffett Rule is also adopted, the rate
would rise to 30% for those earning $1 million—the highest rate since
the late 1970s.

The question is to what purpose? This won't raise much if any revenue
for the government (see Obama's Revenue Soup, April 9, 2012). But it
will impose a big cost on the economy. …

The current Democratic obsession with raising the capital gains tax
comes from a mistaken belief that the preferential rate applied to the
sale of a family business, farm or financial asset is a "loophole" that
mainly benefits the rich.

But that ignores the vital link between tax rates and capital
investment. The lower the tax, the greater the incentive to take risks. …Thanks to rate reductions in 1978,
1981, 1997 and 2003 (see chart), the statutory capital gains tax has
fallen to 15% from about 40%. These rate cuts unleashed historic levels
of venture-capital funding for business start-ups. …

Far from being a loophole, the low tax rate applied to capital gains
is beneficial and fair for several reasons.

First, under current tax
rules, all gains from investments are fully taxed, but all losses are
not fully deductible. This asymmetry is a disincentive to take risks. A
lower tax rate helps to compensate for not being able to write-off
capital losses.

Second, capital gains aren't adjusted for inflation, so the gains
from a dollar invested in an enterprise over a long period of time are
partly real and partly inflationary. It's therefore possible for
investors to pay a tax on "gains" that are illusory, which is another
reason for the lower tax rate.

Third, since the U.S. also taxes businesses on profits when they are
earned, the tax on the sale of a stock or a business is a double tax on
the income of that business. …

The main reason to tax capital investment at low rates is to encourage saving and investment. Many economists believe that the
economically optimal tax on capital gains is zero. … Almost all economists agree—or at least used to agree—that keeping
taxes low on investment is critical to economic growth, rising wages and
job creation. …

Democrats who argue for higher
taxes on capital are advocating less investment and dooming workers to
fewer jobs at lower wages.