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Higher taxes result in businesses that choose to reinvest and increase their operations rather than distributing money to its owners. This could lead to capital gains if you choose to sell your ownership interest.
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The second profit motive for investment is the idea that the success of the business will generate demand for ownership, thus increasing the value of ownership on the secondary market. When it makes money, that income is taxed as ordinary income when distributed, or if kept without re-investment, as business income. If a potential business has a good business plan, a good product and will make money, people will invest in it. One of the things that goes with ownership, and one of the two primary reasons people invest, is a share of profits. What you are talking about is the initial offering of the shares by the company in which the company is looking to exchange ownership, and everything that goes with it, for capital investment. That's what is called the secondary market. That sale ONLY might have an effect on the value of the shares of the company in the hands of other investors. That sale has ZERO effect on the business' profit, capitalization, available resources, etc. Why? Because capital gains ONLY apply to the gains realized upon the SALE of the shares or ownership interest in the company. Nobody's going to complain about it though because no one can see what could have been.Ĭapital gains do NOT stand in the way of investment in business. Do you think there are any negative consequences to this? If I were starting a business and seeking investors, it would sure be a lot harder to get investors when the capital gains rate is 35% rather than 15%.