Issue Overview

Tax policy plays a critical role in the overall health of the U.S. economy and the innovation ecosystem.  A tax code that facilitates new business creation is key to American competitiveness, long-term economic growth and job creation.

All too often lost in the larger debate over tax reform is how to craft tax policy that bolsters the innovation ecosystem.  Rather than focus on tax policy as it relates to larger, well-established corporations, policymakers should consider how tax reform would affect the potential of existing startup companies to succeed as well as how it could increase the development of new startup companies.  The impact of tax policy on entrepreneurs and startups should not be forgotten.  Breakthrough ideas often times transform into new companies and sometimes even entire new industries, all of which can then become part of the foundation of America’s economic competitiveness.

In order to be effective, any tax reform proposal must consider how current tax policy affects the American innovation ecosystem, protect what is working, and make modifications and improvements to what isn’t.  As policymakers consider and debate comprehensive tax reform to create a more competitive tax code, it’s critical that the system is designed in such a way that it supports entrepreneurs and their investors and facilitates the growth of more startup companies that bring groundbreaking products and services to the marketplace.

NVCA’s Position

NVCA supports tax reform proposals that seek to enhance and facilitate the continued growth of the U.S. innovation ecosystem and recognize the importance of encouraging long-term investment in new businesses that spur economic growth and job creation. As such, NVCA will continue to support sensible partnership tax rules that have facilitated the creation and growth of the venture capital industry and a startup ecosystem that is the envy of the world. This includes a tax structure that fosters capital formation, encourages risk taking and rewards long-term investment.

NVCA supports a globally competitive capital gains rate applicable to returns earned by venture capitalists and entrepreneurs for building successful companies over the long-term. In addition, NVCA believes a meaningful differential between the capital gains rate and ordinary income rates is important to continue encouraging capital formation for new business development.

Because pre-revenue small businesses can’t take advantage of existing tax preferences at a time when they need the assistance the most, NVCA supports changes to the tax code that will support young companies in their infancy. As policymakers consider proposed tax reform proposals, NVCA hopes policymakers will consider measures that directly support startup and pre-revenue companies as they grow and fight their way to success.
Simply put, NVCA believes that a strong tax reform proposal must contain policies that encourage an ecosystem where more of today’s innovative new companies can grow into the foundations of tomorrow’s economy.