Despite the importance of the capital gains tax preference, and the controversy it often evokes, there has been relatively little serious scholarly attention paid to the historical development of this highly significant tax provision. This Article seeks to move beyond the normative and presentist concerns for or against the tax preference to recount the empirical beginnings and early twentieth-century development of this important tax law. In exploring the curious beginnings of the capital gains tax preference, this brief Article has several aims. First, its main goal is to show that the preference is not a timeless or transhistorical concept, but rather a historically contingent one—a concept that has been shaped not purely by economic logic, but rather by political compromise and social experience. Second, it uses the capital gains tax preference to shed light on broader historiographical questions about the rise and fall of different guiding principles of American political economy. Third, by examining the shifting political coalitions and constituencies behind the tax preference, it intends to show that it is not simply wealthy and elite American taxpayers and their representatives who have supported this tax law. Rather, over time, the law has had a variety of proponents, suggesting that the provision’s persistence can be explained as much by political forces and institutional inertia as by seemingly inexorable economic reasoning. Ultimately, an exploration of the beginnings and early twentieth-century development of the capital gains tax preference provides an opportunity to think about how “we are what we tax.”

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