The Democratic competition to bleed the rich has become fierce. If progressives aren’t satisfied with Elizabeth Warren’s proposed “wealth tax” of 3% a year, AOC’s 70% income tax, Bernie Sanders’s 77% estate tax, or Rep. John Larson’s uncapped payroll-tax increase of 2.4 percentage points, they now have a fifth option. Oregon Senator Ron Wyden wants to tax capital gains as regular income, meaning rates up to 37%. He would also tax unrealized gains, perhaps decades before the investor sells.

Mr. Wyden hasn’t released a formal plan, so the details are sketchy. Under current law, long-term capital gains are taxed at rates up to 20%—plus a 3.8% ObamaCare surcharge on investment income—only after the asset is sold.

Mr. Wyden calls this a loophole. “There are two tax codes in America,” he said recently. “The first is for nurses, police officers and factory workers—those who earn wages and pay taxes with every paycheck. The second is for millionaires and billionaires.” But there are good reasons to tax capital gains at preferential rates, which is why the U.S. has done it for decades under Democrats and Republicans.

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The lower rate encourages investment and productive risk-taking. It reduces the harm from double taxation after corporations already pay income taxes. It also assists the mobility of capital by reducing the “lock-in effect” from investors holding assets to avoid taxes.

In a December working paper for the Federal Reserve Bank of St. Louis, two economists looked at what happened in South Korea when a 24% capital-gains tax on certain large firms was switched to a 10% rate. Compared with unaffected companies, “the affected firms increased investment by 36 percent and capital stock by 9 percent within three years.”