[FoRK] Private equity, venture capital, entrepreneurs, and tax policy

[Russell Turpin]

There are lots of ways to skin a tax cat. Obama's economics advisor Austan
Goolsby says that to foster innovation, Obama wants a zero rate on capital 
gains for entrepreneurs and VCs:

http://online.barrons.com/article/SB120191165138737001.html?mod=googlenews_barrons

The question is how that is reconciled with wanting to raise the capital 
gains tax, otherwise. Given that the tax law can define some boundary 
between early and late capital gains, such that I get the low rate for my
equity in a startup on the happy day I experience large gains from it, but
pay a higher rate from my sale of an exchange traded stock, several issues
remain. 1) There is a linkage in liquidity. The folks who would be buying
my sweat equity will be doing so as a later stage investment, and presumably
would be looking at higher capital gains when they go to sell, which will
enter into their calculation when they look to buy. 2) Getting rid of old 
companies is as important as creating new ones. Vultures are no less a part
of the ecosystem than eggs. 3) While I, personally, am all for encouraging 
entrepreneurial activity, I'm sure some economist might argue that most early 
stage entrepreneurial activity is wasted, and that a balance is needed 
between it and more mature, later activity. Of course, that economist likely 
is an academic whose sole experience with risk is going into Kamchatka with
ten armies against six. 

All those caveats given, I doubt that the changes that will come are as 
great as those discussed on the campaign trail. Congress, after all, writes
tax law. And Jeff should take some comfort in the fact that Obama wants to
encourage VCs. Even though Jeff has morphed into a quant. Or at least a 
hypothetical quant. ;-)

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