> I do not believe that there is any strong argument for treating capital gains differently from other other income as a matter of economic policy.

The lower tax rate for dividends, for example, is a carrot dangling in front of a would-be enterpreneur. The idea of having less of the fruits of your labor forcefully taken away from you is very appealing.

Of course, the alternative is to take your intelligence to a friendlier tax climate, and be milked less by that other government. That carrot is a pretty good idea, because in this case, your original government gets nothing.