Obama To Eliminate Cap Gains Tax for VCs?

Did Barack Obama just propose to eliminate capital gains taxes on venture capitalists? The same Barack Obama who most VCs believe will increase their tax burdens?

The answer seems to be yes, upon my first reading of a new economic stimulus plan released this morning by Obama, called the Small Business Emergency Rescue Plan. Here’s a snippet:

Barack Obama believes that we need to encourage investment in small businesses to help create jobs and turn our economy around. That’s why Obama will eliminate all capital gains taxes on investments made in small and start-up businesses. Unlike John McCain, who wants to give $200 billion in new tax cuts to America’s largest and most profitable businesses, Barack Obama wants to cut taxes for the small businesses that create jobs but struggling with restricted access to credit alongside skyrocketing health care and energy costs.

That would seem to cover venture capitalists, or at least those who still engage in early-stage investing. I’ve put in a call to Obama’s campaign to see if there’s any fine print that would exclude institutional investment, but have not yet gotten a call back. At the very least, angel investors would seem to be covered.

The only caveat here, and it’s a big one, is that Obama favors a change in the tax treatment of carried interest — from capital gains to ordinary income. That means that the new proposal would be irrelevant for most institutional VCs, since they would no longer be paying the capital gains tax that Obama now vows to eliminate. If this new plan were enacted absent the carried interest change, however, it would not only spur angel investment, but also prompt VC firms to increase their early-stage activities…

Obama’s new plan also includes an emergency lending facility for small businesses, which would be run through the SBA. You can download the full plan here: obamaplan

Update The National Venture Capital Association has taken a look, and said the following:

We don’t believe that many VCs or venture backed companies have taken advantage of the SBA’s loan guarantee programs so there is probably little impact there. The other business tax incentives in the plan look as if they are related to depreciating purchases of equipment and that sort of thing. In that context it could be beneficial for portfolio companies that are looking to make purchases but need to keep costs down. Of course, the zero capital gains rate for investment in small business is the most intriguing component and obviously would be favorable if it included venture investment but its too early to get excited – yet the direction sounds encouraging. As with all policy proposals, the devil is in the details as to how this would be implemented.