Senate Republicans need to do more work on their proposed tax legislation to better support entrepreneurs, says the National Venture Capital Association.
The NVCA has spoken positively about the House version.
“Senate Republicans have taken an important first step to modernize the code with the introduction of their tax reform legislation, and we are encouraged to see the preservation of some important priorities for the entrepreneurial ecosystem,” said Bobby Franklin, CEO of NVCA, in a statement on Friday.
“However, we are concerned some aspects of the draft legislation would cause great harm to the ecosystem, including language related to non-qualified deferred compensation that would tax stock options at vesting rather than when they are exercised. We are hopeful this can be fixed, and in the coming days, we look forward to continuing our conversations with Senators to share with them our tax reform proposals to spur new company formation as well as impress upon them how important it is that they not raise taxes on investment in entrepreneurial activity.”
The NVCA has been feuding with the Trump Administration over a variety of issues, from carried interest to R&D and stock rules affecting startups. But the NVCA likes much of what it has seen in the proposed tax bill released in the House.
“We view tax reform as a unique opportunity to encourage new company formation by modernizing the tax code to better reflect the realities of the entrepreneurial business model,” Franklin said last week.
“We are pleased the House Ways and Means Committee heard our message and is preserving several issues important to the entrepreneurial ecosystem, including Qualified Small Business Stock Rules and the R&D credit payroll offset.
“We are also pleased to see the inclusion of an NVCA-backed proposal to allow startup employees to defer taxes on their exercised stock options without a liquid market to sell them.”
Carried interest remains on the President’s list of things he wants to do away with, however.
Here’s how carried interest is described by TechCrunch:
“Carried interest is the percentage of a [venture] fund’s profit — usually a 20 percent share but sometimes up to 30 percent for top firms — that’s paid to firms’ institutional investors. It’s currently treated as long-term capital gains, making it eligible for a tax rate as low as 23.8 percent. Ordinary income, in contrast, can be taxed as much as 39.6 percent for single individuals earning more than $415,050 or more than $466,950 for those who are married and filing jointly.”
The legislation is a long way from passage, and much debate as well as changes are expected.
“As the process unfolds, we look forward to engaging with lawmakers on other ways tax reform can encourage new company formation, as well as reinforce for them the importance of long-term patient investment when considering changes to the taxation of carried interest capital gains,” Franklin said.
