If a company retains earnings, it has to pay taxes on them (as profits), but the money is still at risk (from a shareholder’s point of view) if something bad happens to the company (lawsuit or market problem). Shareholders usually want to receive whatever money the company has saved up, to safeguard it from being lost for no reason, and so that they (the shareholder) can put it to use elsewhere. This would change if the government stopped taxing retained earnings.
It would definitely change, because a shareholder could then take a loan against the non-taxed retained earnings they are owed. So then it comes down to whether the tax is higher or lower than the loan interest (adjust for the risk you mentioned).
Retained earnings are not taxed per se. A company pays taxes on profits. Whether the profits are distributed to shareholders or retained makes no difference whatsoever as far as taxes are concerned.
They are taxed; they are taxed because they are a subset of profits, which is a taxed category. They are not taxed more than other profits, but that doesn’t mean they’re ’not taxed’.
