With the Presidential election mercifully over and the congressional post-election dust having settled, it is finally time to read the tea leaves and make projections regarding what the venture industry can hope to achieve in the political year that is about to commence.
In order to do so, we first have to look at the congressional hand that the electorate dealt us last November. The most notable characteristic of the new congress is, of course, its narrow division. The GOP majority in the House has shrunk to just a few seats leaving Republicans little wiggle room to advance anything beyond a modest agenda. The 50-50 split in the Senate – a tie that will be broken by Vice President Dick Cheney, who also holds the title of President of the Senate – will leave Republicans in nominal, if not actual control. In short, the parties will have to “play nice” if they hope to achieve anything.
Under this situation, the beneficiaries of any power shift coming out of the election are the political moderates of both parties. Moderate Democrats – known collectively as the New Democrat Coalition – and moderate Republicans – who are organized under the banner of the Republican Main Street Partnership – will provide the crossover votes that will pass the major pieces of legislation in the new congress. Our industry, as represented by the National Venture Capital Association (NVCA), has an excellent relationship with both of these groups.
Bipartisanship will not just be an aspiration but a necessity. And a bipartisan agenda will be one that holds promise for the venture industry. Several legislative initiatives that were of interest to our industry last year garnered significant support from both sides of the aisle before time ran out on the congressional clock. These items will be reintroduced when the new legislative session begins. A sample list includes:
* FASB moratorium legislation: bipartisan legislation was introduced last fall calling for a moratorium on the proposal by the Financial Accounting Standards Board to eliminate so-called “pooling of interests accounting” for business combinations. While our congressional friends stand ready to reintroduce this legislation this year, FASB lately has indicated that it will seek to more adequately address the remaining specific concerns of industry before taking further action. This issue will remain alive for several more months, but industry is cautiously optimistic that FASB will act responsibly;
* Estate tax relief: a proposal to provide estate tax relief gained solid bipartisan support last year before being vetoed by President Clinton. Building on this, some sort of tax relief seems to be within reach this year;
* ERISA reform: a bill to modernize the Employee Retirement and Income Security Act advanced in congress last year with the support of both parties. This legislation contains provisions designed to ensure and enhance the efficient participation of ERISA plans in venture funds. It will stand a very good chance of passage this year;
* Stock options & ESPP legislation: legislation was introduced last year to create a new type of stock option for regular employees that would allow them to defer all taxation on their stock options until the shares are sold. This legislation will likely be combined this year with another bill designed to expand the use of employee stock purchase plans (ESPPs). Efforts to expand employee equity participation appeal to both parties and will stand a good chance of passage this year;
* Further HSR reform: building on the successful effort to raise the Hart-Scott-Rodino transaction threshold for merger reviews from $15 million to $50 million last year, there may be bipartisan support for further HSR reform. Included here is an effort to eliminate HSR filing fees altogether. The agencies that administer HSR, which depend on the filing fees for their revenue, would prefer funding out of general government revenues. As matters now stand, their revenue fluctuates with M&A activity.
On a down note, it should be mentioned that more ambitious initiatives that would benefit the industry will find little, if any, traction this year. Specifically, any attempt to lower the capital gains tax rate will not get off the ground – especially since the most recent reduction came only a few years ago. At the same time, however, it appears highly unlikely that any effort to raise the capital gains tax rate will materialize.
All things considered, the election results were very positive for the venture industry. The balance of power within congress will lie with pro-growth, pro-trade, fiscally responsible members from both parties. Our industry has many, many friends among this bipartisan collection of legislators. Furthermore, we have very important relationships with key members of the new administration. After a confusing and raucous election season, we stand ready to pursue a solid agenda that will help ensure a strong and growing venture industry. t
Mark Heesen is President of the National Venture Capital Association, based in Arlington, VA.