Contact Information: Contact: Emily Mendell NVCA 610-565-3904 Channa Brooks Tenor Communications for NVCA 202-641-6959
House of Representatives Penalizes Job Creators to Pay for Year End Tax Extensions
Hasty Passage of HR 4213 Significantly Compromises Venture Capital Role in Reviving the Economy, According to the National Venture Capital Association
| Source: National Venture Capital Association
WASHINGTON, DC--(Marketwire - December 9, 2009) - Today's House passage of The Tax Extenders
Act of 2009 HR 4213 will harm venture-backed job creation at a time when
America is striving for economic recovery, according to the National
Venture Capital Association (NVCA). The bill contains a provision which
doubles the taxes on venture capitalists who build successful companies,
significantly upsetting a risk/reward equilibrium that has been encouraging
long term investment for decades. The purpose of the provision, which
changes the tax status of venture capital carried interest from capital
gains to ordinary income, is to pay for year-end tax extensions. The bill
passed, despite opposition to using the carried interest provision voiced
by a significant group of Members of Congress representing diverse
districts across the country.
"Increasing the taxes of long term investors whose commitment to building
companies and creating jobs has been proven for decades is counter
productive to the one goal on which our country should be focused --
economic recovery," said Mark Heesen, president of the NVCA. "The President
and Congress have made it clear that to emerge from our financial troubles
our country needs jobs and innovation. Taxing VCs who are working with fast
growing start-up companies so that large corporations can continue to
receive tax breaks is ill conceived policy."
The venture capital industry has a long history of job creation and
innovation which has flourished under the existing tax code. According to
HIS Global Insight, companies that were founded with venture capital today
employ more than 12 million Americans and have revenues that equate to 21
percent of U.S. GDP. The investment model is characterized by its long
term, high risk nature and is the type of investment that policy makers had
in mind when enacting capital gains tax provisions. Raising taxes on
carried interest, which is only earned when the venture capitalist creates
a successful portfolio of companies, will risk discouraging this type of
investment going forward.
The tax change will also impair investment in high tech industries that are
critical to ongoing U.S. leadership including life sciences and clean tech.
Both industries have become more capital intensive and longer term -- many
companies having investment time horizons of 10 years or more. With the
venture industry poised to contract, continued investment in these areas is
already at risk. A tax change could thwart innovation as investors are
better rewarded overseas.
"If the government wants to support economic recovery, policymakers should
not harm those communities that are best positioned to contribute to
economic growth and increase employment," said Heesen. "The House has
compromised a business model that has set the U.S. economy apart for
decades. It is our sincere hope that the Senate understands what is at
stake and does not use carried interest for venture capital as a quick pay
-- for when they consider the tax extender package."
About the National Venture Capital Association
The National Venture Capital Association (NVCA) represents more than 400
venture capital firms in the United States. NVCA's mission is to foster
greater understanding of the importance of venture capital to the U.S.
economy and support entrepreneurial activity and innovation. According to a
2008 Global Insight study, venture-backed companies accounted for 12.1
million jobs and $2.9 trillion in revenue in the United States in 2008. The
NVCA represents the public policy interests of the venture capital
community, strives to maintain high professional standards, provides
reliable industry data, sponsors professional development, and facilitates
interaction among its members. For more information about the NVCA, please
visit www.nvca.org.