Thinking through tax reform: fairness vs incentives…what am I missing?

I’ve been thinking about tax policy and how we could strengthen the country’s fiscal position without killing the incentives that have made the U.S. economy so productive. I’m not an economist, so I’m genuinely interested in where this breaks down.

A few ideas I keep coming back to:

First, I don’t really understand why we tax capital differently than labor. Wages are taxed at ordinary income rates, but long term capital gains, dividends, and in some cases interest get preferential treatment. If income is income, why not treat it all the same? It feels like equalizing those rates would generate meaningful revenue without fundamentally changing how people behave.

Second, the “borrow against assets” dynamic seems like a major gap. Very wealthy individuals can hold appreciated assets, borrow against them to fund their lifestyle, and avoid triggering a taxable event. Then at death, the step up in basis wipes out the gain entirely. I understand the argument for not forcing founders or long term owners to sell assets prematurely, but the idea that you can generate real cash flow and never pay tax on the underlying gain doesn’t make a lot of sense to me.

One possible approach would be to treat cash flow from borrowing against financial assets as taxable income, while allowing any taxes paid to be credited back when the asset is eventually sold. That way you preserve control and long term ownership, but you don’t allow indefinite tax avoidance.

Related to that, I struggle with the logic of a full step up in basis at death. At some point, the value that was created should be taxed. I’m open to nuance here, but a complete reset feels hard to justify.

On corporate taxes, I’m less certain. I do think there’s real risk in pushing rates too high and incentivizing companies to move operations or profits elsewhere. That’s an area where I think the tradeoffs are more complicated and I don’t have a fully formed view.

On top marginal rates, I’m open to increases, within reason. The common argument is that higher rates reduce incentives for entrepreneurship and risk taking. My instinct is that truly entrepreneurial people are going to build regardless, and that modest changes at the top probably don’t meaningfully alter that behavior. But I’m open to being wrong on that.

Stepping back, I’m firmly pro capitalism. I think it’s the most effective system we’ve ever had for improving overall living standards. People taking risks, investing capital, and building things that others value is what drives progress. I’m not looking to undermine that. The question is whether we can tighten parts of the system that feel inconsistent or overly advantageous without breaking the engine.

So I’m curious where this falls apart. What unintended consequences am I missing? Where do these ideas create distortions that are worse than the problems they’re trying to solve?