How did the person with $1M in investments GET $1m in investments?

Answer: they made a lot of income along the way that was already taxed, they invested some/most of what was left in whatever - a business that created jobs to pay others so all those people pay taxes -, or stocks or bitcoin or gold or whatever.

And when they sell it in a taxable account, they'll get taxed on the gain (at a lower rate, yes). If we withdraw it from a retirement account, we get taxed on it at regular tax rates, and we get penalties on top for an early withdrawal.

So this would tax all the individuals who were lucky enough to invest in businesses that had appreciating values on the appreciated value of their assets? Wow.

Think of the megaton-scale blast radius of logical consequences of behavior people and businesses will go to to avoid anything like that. And when would it be done? Annually? On the change in investment value since last year? Would they be allowed a refund the next year when there's a bear market? Hahahahaha. On and on.

Hell, why not start taxing everyone who has an appreciated house that hasn't sold it yet?

Or get taxed on the cash they've saved instead of getting taxed on appreciated stock investments?

The PROBLEM is the businesses that have phony tax writeoffs, subsidies and tax credits written into the tax code while we sleep. Like contractors who can write off the cost of a new pickup truck as a business expense, or oil companies that can book billions of dollars of after-tax profit a quarter because they helped double the spot price of oil while getting subsidies to not spend as they're supposed to on cleaner sources - which we littles get to pay for dearly in heating bills.