Entrepreneurs from North Carolina and Georgia have joined the fight against proposed changes in capital gains tax treatment for venture capitalists.

In a letter signed by more than 500 people, the executives say the proposed bill would mean a substantial tax increase for VC firms.

The letter was made available to the media by the National Venture Capital Association. The group also distributed a press release about the letter. The NVCA has been very outspoken in resistance to the proposed tax change.

The bill focuses on what is called “carried interest.” For VCs, carried interest is profits earned from investments in startups. The proposed changes also would affect private equity and buyout firms.

The carried interest language is included in a bill introduced last week by Charles Rangel, a New York democrat who leads the House Ways and Means Committee. Under the bill, carried interest would be taxed as ordinary income at rates as high as 35 percent. Currently the carried interest is taxed at the capital gains rate of 15 percent.

“As leaders of new American companies, we’re concerned that tax proposals currently before Congress may harm a vital agent of our success – our venture capital partners,” the letter said. “We are entrepreneurs who have invested our lives in our businesses. We are the risk-takers, the innovators who work without the safety net of a big corporate structure. We build technologies, bring medical research to market and develop environmental science – just to name a few of the industries we influence. Without capital, however, our dreams and visions are like an airplane without fuel.”

Signers from North Carolina firms included Aldagen, NewHope Bariatrics, Icagen, Regado Biosciences and Biolex. Georgia firms on the list included Altea Therapeutics, CBeyond and EcoSmart.

According to the NVCA, venture-backed companies employed more than 10 million people in 2006.

“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,” said Mark Heesen, president of the NVCA in a statement released along with the letter.

“The U.S. economy is undergoing considerable strain,” he added. “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 nation’s goals of energy and security independence.”

In a statement issued on October 25, Heesen reacted strongly to the Rangel bill.

“The legislation introduced today 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,” Heesen said.

“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. The U.S. 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 U.S. jobs and foster innovation is not the answer. We look forward to continuing to work with Chairman Rangel and members of Congress in the weeks ahead on balancing the need for tax reform with support for the start-up community.”