The farmer paid tax on selling his vegetables, and property tax, and all the other taxes as you said. If the farmer improves the land by constructing something

The farmer paid tax on selling his vegetables, and property tax, and all the other taxes as you said. If the farmer improves the land by constructing something on it, using his own money, then that is above and beyond the simple sale of products. It should be taxed as an investment that grew in value (i.e. Capital Gains), not as normal income, because the farmer had to risk his own savings to construct it. If the construction is a hotel, of course he pays taxes too on the income from that. But he was already taxed for the money he saved which he put into building the hotel, so why should he be taxed twice at the income rate when he sells it? The point of having a capital gains taxrate lower than an income taxrate is to incentivize people not to bury their savings under the mattress but to use it to create new growth. Whether that's by investing in listed companies or in their own startup. The central difference between tax on earnings and tax on capital gains is that the money the farmer spends to build something new besides simply harvesting, is money the farmer already had saved after tax, and could have put elsewhere, but he took the risk of putting it here. That is why it's unwise to tax creating new value on existing properties, with your own funds, more than you would tax other investments. It prevents people from improving their own properties (or whatever startup or other project they're working on). Obviously, if you believe that it's best not to stimulate anyone to create anything new, then you wouldn't subscribe to this idea.