Barack Obama’s plan to raise taxes on hedge funds and private-equity firms is raising the ire of venture capitalists.
Carried interest from investments would be taxed at a higher rate under Barack Obama's plan
The president last week made hay with a bold plan to shift wealth from America’s rich to its middle class, easing a three decades of growing income inequity in the country.
One measure to accomplish this – unveiled in the young president’s first budget – is a proposal to increase taxes on “carried interest,” the money general partners and hedge-fund managers pocket from their investment returns. The majority of the investment return goes to limited partners and investors.
Today the payout to VCs is taxed at 15 percent, the rate for capital gains. Under Obama’s plan, the rate would increase to that levied against ordinary income, or as much as 39 percent.
Such a boost would discourage people from taking jobs as venture capitalists, especially young people who have other career opportunities, says Mark Heesen, president of the National Venture Capital Association.
Of the nation’s 7,000 venture capitalists, only about 500 received carried interest checks last year, says Heesen. That’s because earning carried interest is hard. Portfolio companies take years to grow into valuable businesses that can then be sold or which can launch initial public offerings.
Many fail before they get there.
“If you put impediments in front of venture capitalists, there will be less innovation going on,” says Heesen.
Posted by Mark Boslet 
