House Passed Startup Stock Bill Amid Loss of Democratic Support

(Bloomberg) -- The U.S. House passed a bill Thursday to allow new employees at startup companies to defer paying taxes on their stock options, even though some of the measure’s Democratic co-sponsors pulled their support.

The bill passed in a 287-124 vote.

Democratic backers complained that Republicans refused to find a way to pay for provisions that would lead to more than $1 billion in lost or delayed income, even as the GOP has been demanding that emergency money to combat the Zika virus and to respond to other crises be paid for with corresponding spending cuts elsewhere. 

"Inexcusable and in some respects immoral," said House Ways and Means top Democrat Sander Levin of Michigan. This bill "is in no way an emergency and is not being required to be paid for."

Even the bill’s two main Democratic co-sponsors -- Representatives Joe Crowley of New York and Anna Eshoo of California -- took to the House floor Thursday to urge their colleagues not to support their own bill, despite what they say is its aim of boosting entrepreneurship. They said they had offered Republican leaders an amendment that would have provided an offset, but were denied.

"I wonder how the women who are pregnant and have the virus feel about the fact that we’re doing a tax bill today, unpaid for -- and yet requiring an offset or pay-for for money to go toward the Zika virus," or an offset of money needed to address lead-tainted water problems in Flint, Michigan, said Crowley. 

He said the Senate Finance Committee this week passed a similar measure-- but with an offset -- that he hopes will make its way to the House so he can support it.

Majority Leader Kevin McCarthy of California praised the bill, said the House did pass Zika funding, and that it was Senate Democrats who blocked that bill.

High Cost

At issue is that the measure, H.R. 5719, would reduce federal revenue by more than $1.3 billion over the next decade, according to an estimate by the Joint Committee on Taxation. The Office of Management and Budget released a statement Monday saying the Obama administration strongly opposes the House version because it would increase the federal budget deficit by $1 billion over 10 years.

The bill is designed to allow employees of startups to defer the taxes on their stock options until they’re likely to have the funds necessary to make their payments. The idea is to allow such companies to attract the best talent, and also to promote ownership. 

The taxes would not have to be paid for seven years, or until some triggering event -- such as the company going public or a stock buy-back, explained Ways and Means Committee Chairman Kevin Brady of Texas, who praised the bill. He cast it as a way to help startups and the workers behind them "thrive," because at first these companies may not have money to pay large salaries. This would allow them to still attract top talent. He said the bill is a "bipartisan solution" and an innovative one.

"The tax code should not stand in the way of developing new life-changing technologies," said Republican sponsor Erik Paulsen of Minnesota.

But Democratic views changed, said Crowley, when the cost of the bill became clear, and he and Eshoo were rebuffed in an attempt to get House Republicans to provide offsetting cuts.

"So here we have a combination of good policy and irresponsible fiscal policy," said Eshoo. "When are we going to stop charging things to the national debt?"

"This could have been bipartisan and you could have passed it on a voice vote," she added.