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why is the money withdrawn from traditional IRA taxed at the ordinary income tax rate?
This is actually (to me) an interesting point to note.  While the answer is "that's what Congress wrote," there are implications to note. First, for many, the goal of tax deferral is to shift 25% or 28% income to 15% income at retirement. With long term gains at 15%, simply investing long term post tax can accomplish a similar goal, where all gain is taxed at 15%.  Looking at this from another angle, an IRA (or 401(k) for that matter) effectively turns long term gains into ordinary income.  It's a good observation, and shouldn't be ignored.