It's an effective tax on principal if you tax nominal capital gains. If you want it to be a tax on actual "income" in real terms it needs to be a tax on real (

It's an effective tax on principal if you tax nominal capital gains. If you want it to be a tax on actual "income" in real terms it needs to be a tax on real (i.e. inflation adjusted) capital gains. How much of a tax on principal it is depends on the inflation rate, of course; right now it's not much of one, but back in the 70s it would have been a bigger deal.