Gbaji, let's say increase the percentiles in the upper tax brackets instead of the middle tax brackets. These are not the poor, they have investments, which as you said help to build companies and are a component in growing the economy. Keep in mind that these are the only two taxation models available, as increasing the very bottom tier tax brackets is realistically not sufficient to generate any sort of income increase, as they don't have enough taxable wealth. Both potentially taxable groups will have to make changes in their investment choices, taxing no-one won't affect the policy decisions in nearly they way you want; as public debt isn't as strong a motivator for program reform as actual taxation, and will lead to higher taxes down the road.
If anything, higher taxation rates in the higher brackets (on investment income) would give a competitive advantage to broad based asset management, which would created less irrational markets and thus tighter and less rigid hi-low swings, since the fundamental mechanics get weird when investor size is enough to buyout swaths of market assets.
Sidenote: I'd actually like to make several entitlement adjustments, like a progressive welfare incentive system (ie. transitioning out the irregular income edge effects created by the mish-mash of current entitlements into a smooth income curvature for those working while on public assistance), similar reforms for those who have been laid off/are out of work (along with a decaying compensation scale), and a couple other smaller things. I haven't taken enough of a look at EoL care modeling to give any well balanced solutions for that.
Why on earth, after we just saw a reduction of investment capital in the financial industry caused by a bubble trigger a nasty recession would we refuse to believe that the same reduction caused by taxation would be any different? It might be slightly less dramatic, but it will have the same dollar for dollar effect.
Yeah, no, it's not the reduction of capital that hurt the financial industry. It's a valuation problem.
If a bank is worth less than zero dollars (A solvency problem), it's not a problem that can ever be solved by increasing investment returns by cutting taxes on that investment. It is **** out of luck. (Barring a negative case bailout)
If noone wants to lend to the bank because they think it's worth less than zero dollars, due to unknown asset evaluations, it's not a problem that can be solved by increasing investment returns by cutting taxes on that investment. It's a problem that requires public evaluation (and subsequent correction), capital bridging (positive case public or private bailout) or increases in investment returns orders of magnitude above capital gains tax reduction, unless the tax is somewhere on the order of 50%+.
Please think things through here.