Do Not Raise Tax Rates on Venture Capital Carried Interest, Urges Ohio Trade Group
December 15, 2008
The U.S. Congress should not raise the tax rate on venture capital carried interest, as this would undermine support for entrepreneurship, particularly in states like Ohio with fragile economies, urged the Ohio Venture Association in a position paper. The board of the Greater Cincinnati Venture Association also voted to endorse the position paper. Several proposals to either treat carried interest as ordinary income, raise the tax rate on carried interest capital gains, or both have been discussed and circulated on Capital Hill.
Venture capital, particularly early stage venture capital, is just beginning to penetrate traditionally late adopting markets across the Midwest. Early stage venture capital is generally managed locally by smaller, risk-taking venture capital firms that expect to manage investments in companies for five to nine years. A large part of their compensation is carried interest, which is the share the firms earn in the equity gain of the businesses in which they invest. The presence of locally managed early stage venture capital is critical to supporting the transition of mature economies into entrepreneurial economics. An increase in tax rates borne by venture capital will slow or arrest the significant progress that has been made. For more information see the position paper, Tax Rates on Carried Interest.
The Ohio Venture Association is a Northeast Ohio membership organization for entrepreneurs, angel investors, venture capital investors and support industries.