VCs Campaign Against Proposed Taxes

A House bill would strip away venture capitalists' capital gains tax treatment of profits.

A U.S. House proposal to increase taxes on venture capitalists will result in lost jobs and economic opportunities, according to an Oct. 29 letter from the National Venture Capital Association to federal lawmakers.

House Ways and Means Chairman Charles Rangel, introduced legislation last week that would more than double the tax rate on carried interest, a term referring to the profit that venture capitalists earn through the successful investment in companies.

Under Rangels plan, carried interest by venture capitalists, along with private equity and buyout firms, would be taxed as ordinary income, at rates as high as 35 percent. Currently, venture capitalists pay a capital gains rate of 15 percent on carried investment.

Co-founders, CEOs and other members of venture-backed management teams from nearly 40 states signed the letter to Congress.


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"We believe that increasing taxes on venture capitalists will hurt the entrepreneurial community," the letter states. "It will especially affect early-stage companies that represent the highest investment risk but that also create the most jobs and opportunities for the American economy."

According to the NVCA, venture capitalists funded companies in 2006 that created 10 million jobs. The total revenue of those companies accounted for nearly 18 percent of the U.S. gross domestic product, the group said.

"We all want to keep America competitive in a rapidly developing global economy," the letter states. "This is hardly the time to limit our ability to turn the next big idea into a successful company or industry that can employ millions of our neighbors. For these reasons, we urge you to retain capital gains tax treatment for venture capital carried interest."

The NVCA contends that stripping away venture capitalists capital gains tax status represents bad public policy since higher taxes would discourage investments in startup companies.


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"Venture capital is the only industry in the proposed carried interest legislation that creates new companies, industries and technologies and plays a critical role in the revitalization of many communities," NVCA President Mark Heesen said in a statement.

"The U.S. economy is undergoing considerable strain. Washington policymakers should be doing all they can to support the one area of the economy that continues to create jobs, allows the U.S. to compete globally and achieves the nations goals of energy and security independence."


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