Please feel free to pass this on to any investors, angels, venture funds, and early stage companies, etc…and join our coalition to let congress know how this will harm innovation.
Right now, the House Ways and Means Committee is meeting to discuss an amendment to the Qualified Small Business Stock (QSBS) tax exemption as part of the Build Back Better (Infrastructure) bill that could reduce who is eligible to benefit from this tax incentive.
This proposed amendment can crush the Venture Capital ecosystem – yet the potential revenue comprises less than 1% of the infrastructure plan’s cost.
As you know, QSBS provides lifeblood to early stage venture capital and the companies it supports. Great innovations in our economy don’t happen in isolation, they are a product of an environment that cultivates and awards risk taking.
QSBS was designed to spur innovation, and these changes would likely lead to less investment driving the economy of tomorrow.
Why does this matter?
Early stage venture capital helps bring to life the ideas and innovations that no one else is willing to back. Many of the companies that have become household names today only became so because people were willing to take a chance on them. I witnessed this first-hand through my father’s career as he would tell me about entrepreneurs he met and what they were working on to solve world problems. I recall when my father told me about how he met Dr. Len Schleifer in the late 1980’s, and how his new company Regeneron was working on bio-science innovations that could cure diseases. While many others brushed it off at the time, today Regeneron is one of the companies helping us all survive the covid pandemic.
The QSBS tax exemption has historically received cross-aisle support as it is a tool to incentivize the type of risk taking that creates jobs and keeps America at the forefront of innovation. Under President Obama, the “JOBS” Act helped make permanent the 100% QSBS exemption – and while the recent tax reform pledged to maintain QSBS, the infrastructure bill amendment may cause lasting damage.
We don’t know how detrimental these amendments to QSBS may be to funding tomorrow’s entrepreneurs
In 2019 the Joint Committee on Taxation estimated the tax revenue lost from QSBS as ~$1.2B per year – the infrastructure bill is projected to cost $3.5 trillion! Is this small portion of funding worth the potential damage to economic growth? We ask that congress hold off making this change until the true impact can be assessed.
We are monitoring these developments closely. Please:
- Join our coalition to let congress know how this will harm innovation.
- We will continue to update this page with breaking news regarding this legislation.
Jonathan and the CapGains Inc. team
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.