The problem with taxing held capital is that you are penalizing investment relative to consumption. I.e., a person who consumes today enjoys a much higher NPV of consumption than a person who invests today and consumes in the future.<p>Scott Sumner does careful calculations explaining this here: u<a href="http:&#x2F;&#x2F;www.themoneyillusion.com&#x2F;?p=28842" rel="nofollow">http:&#x2F;&#x2F;www.themoneyillusion.com&#x2F;?p=28842</a>