Wait, so did you use just the standard white plumbing tape? I'm curious if the thickness of the tape matters, or if it would just get shredded and make a mess after one tool change.

Teflon tape on the tool holder shank? That's a new one for me. I've used it on pipe threads, but never inside a collet. The idea of it damping vibration by filling a tiny gap actually makes a weird kind of sense.

Honestly, is it that big of a deal? I mean @finleyf88 has a point about the heat, but maybe just work for an hour then enjoy the view.