I will say that you have a unique way of looking at that world. As Sheehs pointed out and something that you got wrong in your initial points, business don't have the ability to magically eliminate or even defer taxes on profits by reinvesting. Best case they can reduce the current tax bill by investing capital equipment and R&D which they can depreciate over several years.
there are ways to spend money and expense said money in the same year. advertising and labor costs are but 2. an increase in either will probably create job(s).
However, what you are missing in your suggestion in that higher tax rate will encourage small business to reinvest is that business don't invest based on how much taxes they save, but on the likely after tax return. A higher tax rate by definition decrease the expected return.
Secondly it isn't just capital that small business owners invest, but time and stress. Say you have a $5 million dollar/year business. You have opportunity to invest $1 million in some new employees and equipment in a new related product line. You estimate over 4 year period there is 1/3 chance of utter failure, 1/3 chance of getting your money back and 1/3 chance of making $3 million. This provides an expected ROI of 14% and is probably worth doing. If the tax rate is 25% the ROI drops to 10%, still interesting, at 50% tax rate the ROI is 7% and many entrepreneurs will decide that it just is not worth the risk and the stress. It is better just to spend more time with the wife and kids, so the investment never gets made.
1st) i know that some small businesses do consider tax rates when considering what to do with their profits. in fact, it seems kind of imprudent to not consider the tax consequences when deciding what to do with a companies profit.
2nd) it seems to me that you are considering the impact of taxes on the return side but not on the investment side, which frankly isnt fair. at a 50% tax rate, if the investment is taken from moneys that would be profits if said investment isnt made then the after tax cost of the investment is half what it would be in a 0% tax environment (relating to your 1st ROI number of 14%) and since the investment cost is halved as is the after tax return the true after tax ROI is still 14% even at the 50% tax rate, provided the tax rates dont change in that 4 year period. however i am suggesting that at lower tax rates there is a very real incentive to the small business owners to just bank the profits (thus paying the taxes but not making the investment).