We should be taxing productive activity less and income earned through simply owning things more. The balance has moved too far in the opposite direction.
https://en.wikipedia.org/wiki/Georgism
The distinction is that mere ownership of capital, especially common goods (such as land and natural resources) excludes other members of society from access to that resource. It does not create value, but merely holds claim to existing value, seeking rent for allowing others access to it. This should be taxed. OTOH, productive activity takes that capital, adds labor and ingenuity, and creates goods or services which benefit society--such activity should be taxed less, or not at all.
If you tax owning things a lot, then you tell people that there is no point being very productive as savings throughs higher income go all into taxes. Then people don't have much incentive to be productive.
Most of these ideas have been tried before and you eventually arrive to picking up lesser of many evils kind of situation.
People should own what they create (organizations, buildings, goods, and services), but the natural geography of the world should belong to all. If one wishes to lay claim to a stretch of land, and prevent all other equally born humans from entering or making use of that land and its resources, one should pay a tax to society for that privilege.
As you say, "people competing to allocate capital for higher returns" is a great thing. However, I dispute the fact that some people should even have the right to decide how to invest their land without first paying a societal price for it (much higher than current land tax levels--high enough to cover a corresponding decrease in most other taxes on labor or production).