> reward you get for taking the risk won't be high enough.
Also, as long as the tax rate is less than 100%, the reward will be higher than 0, which is what you get if you don't invest at all.
Also, as long as the tax rate is less than 100%, the reward will be higher than 0, which is what you get if you don't invest at all.
But what if you are investing in stocks or corporate bonds or a broadway play or a promising health technology company like Theranos? There is a non-trivial chance that your reward will be less than 0 - and it could even be a complete wipeout. The low capital gains rate is meant to encourage people to put money at risk rather than sit on it.
Imagine we bet $1 on a coin toss. The expected value for either of us is $0. Now imagine the winner is required to pay 10% tax on his proceeds. The expected value becomes (-$1.00 + $.90)/2 = -$0.05.
Also, as brorfred pointed out, capital losses are deductible, afaik.