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US Venture Capital Lobby Reacts To Rangel Tax Plan,
by Mike Godfrey, Tax-News.com, Washington
Wednesday, October 31, 2007
The US National Venture Capital Association (NVCA) has expressed "deep
concern" over provisions proposed in the Tax Reduction and Reform Act that
would increase the amount of tax paid on private equity fund partners' carried
interest.
In a statement released in response to comprehensive tax reform legislation
introduced by House Ways and Means Committee Chairman Charles Rangel (D-NY)
last week, the NVCA stated that the proposals would mean an effective 100%
tax increase on venture capitalists' carried interest, and raise a significant
barrier to investment in start-up companies and new technologies.
“The legislation introduced by Chairman Charles Rangel to alter the taxation
of carried interest from a capital gains rate to an ordinary income rate greatly
concerns the venture capital community. Simply put, we believe that the current
capital gains tax treatment of carried interest for venture capital is the right
tax and public policy and that this measure will likely have negative implications
for the start-up companies that fuel America’s economic growth,"
stated Mark Heesen, president of the NVCA, which represents approximately 480
venture capital and private equity firms.
Venture capitalists argue that carried interest should continue to be taxed
at the 15% capital gains tax rate, because it represents income derived from
investment, which carries with it an attendant level of risk. But Rangel believes
that such income is "essentially a management fee or payment for services,
which generally are taxed as ordinary income". The bill would, however,
continue to tax carried interest at capital gains tax rates to the extent that
carried interest reflects a "reasonable return" on invested capital.
Heesen continued: "The US has built an entrepreneurial ecosystem that
is the envy of the world and we believe that the consequences of this legislation
will be to penalize the very investors who are committed to growing our most
critical innovative industries. We believe that seriously jeopardizing an investment
model that works so well to create US jobs and foster innovation is not the
answer."
Citing a 2007 Global Insight study, the NVCA says that venture-backed companies
accounted for 10.4 million jobs and $2.3 trillion in revenue in the United States
in 2006.
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