1) They can be reinvested back into the business.
2) They can be held by the business pending future investment opportunities.
3) They can be dividended back to the shareholders.
Taxing profits means less profits remain to reinvest (#1), and less remain to be held in (#2) bank accounts (which are lent out by banks for investments), and less can be dividended to investors (#3) which reduces investor returns and lower returns means less motivation to reinvest in businesses.
Comments
Investments come out before profits, and only profits are taxed.
Only three things can be done with profits.
1) They can be reinvested back into the business. 2) They can be held by the business pending future investment opportunities. 3) They can be dividended back to the shareholders.
Taxing profits means less profits remain to reinvest (#1), and less remain to be held in (#2) bank accounts (which are lent out by banks for investments), and less can be dividended to investors (#3) which reduces investor returns and lower returns means less motivation to reinvest in businesses.