However, in my experience, most people do NOT do this in taxable accounts. Also, people tend to be more apt to use funds that are in a taxable fund before retirement due to the accessibility of said funds.
I can see this, but I did precede the statement with a "limited situation" qualifier. People who make so much money that they either are illeligible for or have already maxxed out tax advantaged contributions seem the most unlikely to feel the need to break into a taxable account.
Their paychecks are giving them enough for whims.
However, that isn't what you said originally.
You said that long term gains lose their luster over time.