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31

Jan

2011

Start-Up America and Zero Cap Gains PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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The NVCA applauds today's announcement by the White House of the Start-Up America campaign that seeks to create jobs through investment in and support of our country's most promising start-up companies.  The spirit of this campaign is consistent with the goals and objectives of the venture capital community.  We remain committed to supporting a public policy environment that fosters entrepreneurship and innovation, as it is key to our country's long term economic growth.  

We have been fielding specific press inquiries today regarding the proposal by the White House to make permanent the zero percent cap gains rate for investment in small business.  The NVCA supports public policies that reward long term investment in our nation's start-up companies and believe this proposal is well intended.  As a candidate President Obama called for encouraging entrepreneurs through long term capital gains incentives.  And throughout his presidency he has supported this particular zero capital gains incentive.  

Unfortunately the complexity of the tax code inhibits most entrepreneurs and those who fund them from enjoying the benefits that the President espouses.  In practice, this section of the tax code (Section 1202) is riddled with complexities that historically have made it very difficult for venture investors to take advantage of this zero percent rate.  It’s important to remember that these provisions were originally enacted under President Clinton.  Since that time, our understanding is that very few venture investors actually have been able to apply and qualify.  By making the rate reduction permanent, perhaps more investors will explore this opportunity and find a way in which to participate, but we are skeptical that many will overcome the significant hurdles imposed by the regulations.  We continue to urge tax policy makers to examine a simplification of this section in order for it to reach its potential in terms of spurring increased investment in the nation’s start-up community.

 

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