U.S. House of Representatives passes big tax on venture capital gains

As if venture capital firms didn’t have enough to worry about, Uncle Sam lowers another hammer: The House of Representatives Friday passed a bill that would significantly raise taxes on interest VC firms collect on profits from startups that go public or get bought.

Tucked into a bill that extends unemployment benefits is a provision that would require that 75 percent of investors’ carried interest be taxed as ordinary income. Normally, the federal government applies a 15 percent capital gains tax on the interest.

“The House of Representatives today failed to recognize the serious economic consequences of their actions,’ Mark Heesen, president of the National Venture Capital Association, said in a statement. “It is both ironic and disconcerting that legislators can profess commitment to creating jobs — and then discourage the type of long-term investment which has been a proven job creator for the last century.”

“We are one step closer to unraveling an economic model that has made America the global center of entrepreneurship and innovation,” he said. “We urge the U.S. Senate (which will take up the measure after the Memorial Day recess) to make the necessary changes to maintain a meaningful incentive for long-term investment in the startup economy.”

If there’s one silver lining for VCs, no one’s buying companies or taking them public anyway.