Venture Capital and Capital Gains Taxation, Issue 2832
This paper investigates the links between capital gains taxation and the level of venture capital activity. I examine two explanations of how reducing the personal capital gains tax rate may spur venture capital: the first focuses on the supply of funds to the venture industry, and the second on the supply of entrepreneurs. The supply of funds is unlikely to be the principal mechanism through which the tax affects venture capital, since less than half of venture investors face individual capital gains tax liability on their realized gains. Moreover, most of the growth in venture funding during the last decade has come from tax-exempt investors. Individual capital gains taxes may however have a significant influence on the demand for venture funds. These taxes have an important impact on the incentives of entrepreneurs and other employees of start-up firms who forego wage and salary income and accept compensation through corporate stock and options. The paper closes by noting that reducing the tax rate on all gains is a relatively blunt device for encouraging venture investment. Venture investments account for less than one percent of realized capital gains.
What people are saying - Write a review
We haven't found any reviews in the usual places.
accrued gains after-tax Auerbach billion Bureau of Economic CAPITAL AND CAPITAL capital gains tax common stock compensation Congressional Budget Office corporate equities corporate subsidiaries Debt demand for venture effective capital gains effective tax rate employees forego wage gains tax liability gains tax rates gains taxation holding periods incentives increased individual capital gains individual investors individuals supply Inflation Rate initial public offerings IPOs IVFs large firms Lawrence Summers level of venture link between capital Martin Feldstein Michael Grossman nominal organized venture capital pension fund potential entrepreneurs Poterba real estate real return realized gains Rudiger Dornbusch salary income SBICs share start-up firms statutory rate statutory tax rate stock options supply of venture tax policy Tax Reform taxation and venture U.S. Treasury U.S. Treasury Department venture capital activity venture capital funds venture capital industry venture capital investment Venture Capital Journal venture capitalists Venture Economics venture industry venture investments