There are severe market stability issues associated with people gravitating towards <1 year holdings. The cap gains rate exists partially to encourage long-ish holdings.
With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.
I doubt there is anything specific about an exact one year holding cutoff, but I'd love to see a source. If anything, the fact that we're having this conversation suggests the long term investment theory has been demonstrated to be either false or uncalibrated as it exists now. I'd also be open to a graduated rate (almost like a vesting schedule) of discounts starting at 1-2 years and ending at 5 years. But do we really need more complexity? Just have it be 5 years and public companies can be long-term focused once again. Markets will survive -- day traders tend to lose money and drop out.
With that incentive severely reduced as your plan proposes, you’ll see much Miles’s incentive to hold and more volatile markets.