That may seem unjust, but a spread like that is absolutely necessary to compensate someone for taking the higher risks associated with major capital ventures.
Consider the example of someone with $10 million in his pocket who can either "save" it (i.e., put it in a bank account or buy U.S. Treasury securities) or "invest" it (i.e., start a company, buy an office building, etc.). The latter approach carries much more risk, but it also generates a lot more economic activity. Hence, the need to provide that someone with a tax incentive to "invest" his money instead of "saving" it.
“The latter approach carries much more risk, but it also generates a lot more economic activity. Hence, the need to provide that someone with a tax incentive to “invest” his money instead of “saving” it.”
What you say would be true if returns were held constant. Of course you would put your money into a less risky investment if the returns were the same. But they’re not. Risk is compensated over time with higher returns. To wit, the greatly higher returns over the long term for stocks versus bonds. Risk is compensated by higher returns.
Tax treatment can impact returns, but it’s not the primary motivator in most circumstances. And watch out where it is the primary mover: remember the last construction bust in the late 80’s? That was in large part caused by investors chasing real estate tax shelters that had little basis in economic reality.
Also, by giving relatively favorable treatment to passive income (investments) you disincentivize workers from working longer and harder to earn more money. That has an impact as well. If the tax incentive is toward passive investing versus work, don’t be surprised when people are more interested in watching the stock market than they are in working.
(irony alert :-))