of Microsoft when it first went public? Compared to now? You are only partly correct--the smart/big money provided the start up cash for the Microsofts of the world.

Fat chance the rest of us have of getting into an IPO like that. The best the little guy can do is to get on the bandwagon a few years down the line and ride the appreciation up. And we do this with our earned income.

And the big institutions, like stock funds, and pension funds? Where do you suppose they get their cash?

Let's say I bought stock "X" in 1984--foregoing a new stereo, or whatever. Capital cost= 10 grand. Inflation has roughly halved the purchasing power over that period of time. Now, assume that the stock appreciates annually at 10% (an average stock, actually) so it is now worth about 70 grand. I cash it in, pay capital gains on 60 grand. I will net about 60 grand (or somewhat less, see below) The present worth of the stock in 1984 dollars is only 30 grand. It will buy me a lot more stereo but a lot less car, house or gasoline than it would have in 1984.

Now, assume I pick a dog of a stock, or invest in bonds--and my return is more like 4%. The value of the dog increases to 20 k, the value in 1984 dollars is just 10 k, but I get to pay capital gains tax on 10 k--making my investment worth less today than 24 years ago.

By the way, inflation is usually BAD for stocks--pay attention to the recent stock market if you need any confirmation of that principle.
And capital gains are not applied at a flat rate--supposedly they are, on paper, but haven't you hear of the AMT or the deduction reductions that occur at certain levels of income?

Not indexing capital gains stinks for the little investor, but it is the only game in town for the little guy to accumulate a bit of wealth. CD's don't do it, bonds won't do it, and if you want to rely on Uncle Sam for your retirement, then good luck to you. People of your political persuasion are always ready to punish the semi-affluent because the uber-rich have the inside track. Newsflash for you: the uber-rich will always have the inside track, because their accountants and lawyers are smarter than the governments, and they can afford to buy themselves the influence to protect their special privileges. Soak it to the rich makes good political theater but punishes wealth accumulation for the merely affluent.

Sometime facts are stubborn because you have to look at all of them, not just the ones you like and support your thesis.