On Thursday, President Trump urged Republican lawmakers to end the tax credits on fateful benefits.
Tax credits allow private equity and venture fund managers to deal with revenue from investments at lower capital gains rates rather than as normal income.
Eliminating tax credits will be a major blow to the VC industry.
“Cryled Interest drives smart, risky investments in innovative growth startups,” said Bobby Franklin, president and CEO of the National Venture Capital Association (NVCA), in a statement.
Trump ended a loophole in favor of interest when he campaigned for the president in 2016. However, when he took office in his first term, his exclusion was not included in the 2017 Tax Cuts and Employment Act. Instead, tax laws have been changed to extend the holding period for assets to qualify for capital gains from one to three years.
The change was completely satisfying for the industry as venture capital companies rarely sell assets a year after their initial investment.
“The Trump Tax Act of 2017 has continued to flow venture investments in emerging technologies such as AI, Crypto, Life Sciences and National Defense. The current changes have disrupt that progress, particularly small investors in Central America. It hurts disproportionately,” Franklin said.
Despite the concerns of the NVCA, the majority of capital invested in emerging tech companies comes from New York and Silicon Valley, with Northern California remaining particularly dominant.