A number of people, including Hillary Clinton, have suggested fiddling with capital-gains tax rates to encourage long-term over short-term investing. I’d say that the reaction to the proposal has mostly been negative, and justifiably so.

One point that I have not yet seen in this discussion is that right now we tax long-term capital gains at higher effective rates than medium-term ones. We tax inflationary gains, and they compound. Indexing the basis of the gain to the price level would be a bigger tax cut the longer-term the investment. Maybe we should try that before moving to some complicated time-dependent statutory rate structure.

Our taxes on capital also encourage a short-term orientation in another way: They mean that consumption tomorrow is taxed more heavily than consumption today, and consumption the day after tomorrow more heavily still.