The past year has already been a rough one for the venture industry, what with the IPO market shutdown, a drawn-out credit crunch and the lingering threat of higher carried interest taxes. This next year, however, things are likely to get even hairier.
At last week’s National Venture Capital Association conference in Santa Clara, Calif., the trade association’s leaders told attendees that federal lawmakers are contemplating a raft of new legislation that threatens to hamper venture returns.
“We were able to dodge a major bullet in 2007,” said NVCA President Mark Heesen, regarding legislators’ proposals to significantly raise taxes on carried interest profits from private equity investments, which failed to pass.
Heesen predicted the carried interest debate would be “back on the table in 2009” as lawmakers look for ways to plug a bulging federal budget deficit.
Capital gains taxation is another lightning rod. NVCA Chairman Dixon Doll on Thursday criticized presidential contender Barack Obama’s proposal to increase the capital gains tax rate to as high as 28 percent.
Doll showed a graph depicting capital gains rates in developed economies, noting that virtually all were lower than that. He demonstrated his lobbyist chops using a tactic that has in the past played well with Washington, D.C. powerbrokers—deriding the French.
At a 28% rate, he said, “that puts us all the way down to the bottom of the graph and we’d be worse off than France.” (In addition to France-bashing, the NVCA plans to commission studies looking at the effect of capital gains tax rates on new company formations.)
Looking to bolster the industry’s reputation as a job-creation engine, the association is also collecting data about employment at venture portfolio companies.
Heesen pointed to patent reform as a key issue in the coming year. The NVCA in April informed U.S. senators that it has “significant concerns” regarding several provisions in S. 1145, the Patent Reform Act of 2007.
The association has also been actively opposing a Small Business Adminstration policy that Heesen says excludes venture-backed companies from receiving certain grants, and pushing for reform of the most onerous provisions of Sarbanes Oxley securities legislation.
News on the legislative front wasn’t all negative. With fossil fuel prices at record highs, Heesen says lawmakers are more receptive to the idea that small energy growth companies could make a big impact developing better, more cost effective alternatives, noting:
“Our phones ring every week from different committees asking for a venture capitalist to discuss how cleantech can address energy issues.”