The Power of the Startup Ecosystem – on Capitol Hill

By: Marianne Hudson, ACA Executive Director

The Angel Capital Association joins the National Venture Capital Association, Center for American Entrepreneurship and many others in thanking Congress for dropping a proposed tax on equity compensation of startup employees that would have devastated the way many high growth companies pay their employees.  The proposal was in both House and Senate bills for tax reform.  The experience of watching many organizations form a coalition and explain to House and Senate leaders how the proposal would have damaged an incredibly important part of our economy also showed us how much power we can have in Washington, DC when we work together.

The proposed legislative language would have taxed stock options at vesting, meaning that employees in early-stage companies would have to pay taxes on income they hadn’t received and in some cases would have never realized.  Many employees wouldn’t have had the money to pay these taxes, making this common type of compensation completely unworkable for new high growth companies.

The House Ways & Means Committee dropped this concept from their tax reform bill late last week and the Senate Banking Committee did the same last night.  ACA especially appreciates that the Senate committee also took an extra step of adding language to the bill allowing startup employees to defer paying stock option taxes until the stock options are exercised and there is a market for them to sell their stock.

ACA is very pleased that Congress recognized the importance of new, high growth businesses while they are working on tax reform.  We are committed to continuing working with Congress and our colleagues in the ecosystem to ensure tax reform policies support the growth and health of the startups that create all of the net new jobs in our country and considerable innovation.  We appreciate the particular leadership of coalition partner NVCA in this work.

There is additional good news for angels in the tax reform language:  both tax reform bills continue to allow for 100% exemption of gains on Qualified Small Business Stock and allow startups to take Research & Development tax credits against their employment taxes rather than corporate income, up to $250,000 per year.  This is important, as most high growth startups don’t have corporate income.