Raimondo Sees U.S. Venture Capital Withstanding Biden Tax Plans

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U.S. Commerce Secretary Gina Raimondo defended the Biden administration’s proposals to raise capital-gains tax rates and end a key tax break used by private-equity and venture-capital investors, saying such changes won’t discourage investment.

“Entrepreneurs like to invent, like to create businesses. Venture capitalists, they’re going to continue to invest in those entrepreneurs,” Raimondo, a former venture capitalist, said Friday in a Bloomberg Television interview with David Westin. “And truthfully, I think there were many who believe, even in the business, that giving preferential treatment to carried interest was never really fair.”

Raimondo Sees U.S. Venture Capital Withstanding Biden Tax Plans

Biden is calling for restoring the top personal income tax rate to 39.6% for people earning more than $400,000 a year, taxing capital gains at the same rate for people earning $1 million or more, and ending the carried interest tax break utilized by fund managers as a key method of compensation.

In addition to salaries, private equity managers rely especially on a share of the appreciation in the assets they oversee -- known as carried interest. Those profits -- sometimes in the millions of dollars -- have been taxed as capital gains, at a rate much lower than the top marginal income tax rate applied to wages. Proponents of carried interest say it encourages long-term investment.

Venture capitalists also argue the tax proposal would discourage investors and entrepreneurs from helping the Biden administration achieve its goals around innovation and climate change as part of the Build Back Better program, according to Bobby Franklin, head of the National Venture Capital Association, a trade group.

“The tax increases on capital gains, including carried interest, undercut this effort by specifically targeting the very entrepreneurs and long-term investment funds whose participation will ultimately determine whether the Build Back Better agenda is successful,” Franklin said in a statement Wednesday.

The current capital-gains rate is 20%, while the top marginal income tax rate is 37%.

“There isn’t really great evidence to back up the claim that an increase in capital gains taxes will result in a decrease in innovation capital,” Raimondo said.

Raimondo also pledged to continue using export controls to protect American innovation and companies from China.

“Frankly we can’t afford for some of this technology to get into the hands of the Chinese government, which some of these can be used for military purposes as well,” she said.

©2021 Bloomberg L.P.

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