This, of course, killed the technology stock market when it took effect between 1988 and 1990. Money is pretty darn rational. It does a fine job of looking after its own hide. It is especially sharp-eyed when it comes to taxes. Just because taxes on capital gains and income are at the same rate in the tax code doesn't mean they produce, in fact, the same result.
Income is taxed immediately.
Capital gains are taxed over a holding period at the point of sale. Inflation creates a phantom paper gain, exposing it to more government grab. Risk grew and reward shrank in the late 1980s. Blame modest inflation, in league with that zero delta in taxes on capital gains and income. Money reacted as money always does, rationally.