[grinnbearit]

You'd always prefer $100 today vs $100 in a year. In order to convince someone to invest you need to offer them more than that in the future.

If the discount rate is 10% (not bank interest, just how much I personally value time) then unless you offer me more than $ 110, I'd rather spend the money now.

For people to invest, discounted_expected_return[1] - capital_gains should be higher than the money in their wallets.

You can play around in excel to understand this better, with a 5% return, a 20% tax on both income and capital gains and a 10% discount rate, $ 100 in income is either $ 80 today or $ 76 in a year.

[1] Discounted for Time, Expected for Risk.

[lotharbot]

I just want to emphasize something you hinted at: "expected return" usually involves an additional discounting factor which relates to risk and risk tolerance. An investment with a fixed return of 5% (a predictable $76 equivalent in a year) is very different from an investment with an expected return of 5% but a standard deviation of +-10% (anywhere from about $68 to $84). A lot of investors would treat that as worth a little bit less, because if it happens to go down, that is felt more keenly than if it goes up.