US Venture Capital Tax Hike Looms

by Leroy Baker, Tax-News.com, New York

19 May 2010

The National Venture Capital Association (NVCA) has delivered to every US Senator a letter signed by more than 1,700 stakeholders from the venture capital and start-up communities urging legislators to maintain capital gains tax treatment for venture capital carried interest.

The Senate is currently considering a proposal to change the tax status of carried interest to ordinary income rates in order to pay for the one-year 2009 Tax Extenders Act, which is in need of offsetting revenues. Such a proposal would penalize venture capitalists who earn carried interest when they build successful companies and create jobs for the long term, according to the NVCA.

"Companies currently receiving venture financing employ more than half a million people in our country today. These companies have added thousands of new positions each month throughout the recession and will continue to do so," the letter states.

"And that is only the beginning of the story as public companies that were originally funded with venture capital account for 11% of America’s workforce. It is an economic engine that has worked for all our citizens and is the envy of the global economy," the letter adds.

“We understand lawmakers’ need for fiscal responsibility, but removing a tax incentive that supports long-term investment of venture capital is at cross purposes with Congress’s goal of rebuilding the national economy,” said Mark Heesen, president of the National Venture Capital Association.

“As more than 1,700 VCs, entrepreneurs and concerned citizens will attest, a change in venture capital carried interest will result in less venture investment in US start-ups and fewer new jobs. If venture capital investment disappears, there is no other asset class which will fill this void,” Heesen added.

The letter which has signatures from more than 40 states specifically asks the Senators “to maintain the current capital gains tax incentive for venture capital carried interest” and “take ‘less’ out of ‘jobless recovery’ by supporting company formation, innovation and economic growth in the US.”

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