What if you want to sell a stock that's done well to buy something else that you hope will do well?

Under Hillary Clinton's proposed capital gains tax, the government will eat a big bite–43 percent–of those profits if you had not held the stock for two years.  If you hold the stock for six years, the capital gains tax would fall to 23 percent. This is called a "tapered" capital gains tax.

I guess trading stock at your own discretion is a sin that must be punished.

In an opinion piece in today's Wall Street Journal ("Hillary Parties Like It's 1938"), Alan Reynolds explains another drawback to Ms. Clinton's capital gains proposal: it has been tried and the experiment worked out badly. Congress passed a tapered capital gains tax similar to what Clinton proposes in 1934. This came with drastic increases on the income-tax rate.

But this was not enough. Reynolds writes:

A separate 1936 bill allowed dividends to be treated as taxable income in all 31 tax brackets. This was a first. Most taxpayers were exempt from dividend taxes before 1936; nobody paid more than a 55% rate.

Yet since the capital-gains tax rate grew in tandem with income-tax rates, the top income-tax bracket increased to 79% in 1936, while the capital-gains tax rate jumped to 63% for assets held one year, 47% after two years, 32% after five and 24% after 10. Even worse, the 1936 law added a surtax on “undistributed profits”—those not paid out as dividends but kept to finance business investment.

It didn’t take long for economic consequences to bubble up: In the 12 months between February 1937 and 1938, the Dow Jones Industrial stock average fell 41%—to 111 from 188.4. That crash presaged one of the nation’s worst recessions, from May 1937 to June 1938, with GDP falling 10% and industrial production 32%. Unemployment swelled to 19% from 14%.

Harvard economist Joseph Schumpeter, in his 1939 opus “Business Cycles,” noted that “the so-called capital gains tax has been held responsible for having accentuated, if not caused, the slump.” The steep tax on short-term gains, he argued, made it hard for small or new firms to issue stock. And the surtax on undistributed profits, Schumpeter wrote, “may well have had a paralyzing influence on enterprise and investment in general.”

The Obama years have made it hard for new business ventures to get off the ground, but Clinton's tax proposals would make launching new businesses even more difficult. If Hillary Clinton follows President Obama to the White House, expect her to continue his dismal record of job non-creation. But the stock market has by and large flourished under Obama. Can't have that! And under Clinton, we likely would not have that.

In 1938 the taper was cut from ten to two years and capital gains taxes reduced. Stocks took off and the Dow rose and the recession drew to a close. Why can't Mrs. Clinton see this? One suspects that like President Obama she is blinded by ideology and perhaps not as much a student of history as one would want a president to be.