1. The higher the capital gains tax rate, the less money will be invested.

Wouldn't that also be true if they don't have alternatives to invest? What are those alternatives?

2. Higher rates make for less efficient economics, because people will hold on to poorly performing investments longer.

Why does it matter to the government/citizens if some investments are held onto for too long? What hit would the gov take?

3. A big chunk of capital gains are actually inflation.

So?