Venture capital group criticizes bill
BYLINE: Katherine Yung, Detroit Free Press
Aug. 17--The Michigan Venture Capital Association warned Thursday that a bill sponsored by U.S. Rep. Sander Levin, D-Mich., to raise taxes on private equity firms and other private partnerships could cripple efforts to increase venture capital activity in the state.
"Nobody would start a fund," said Thomas Kinnear, vice president of the group and the executive director of the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies at the University of Michigan. "The irony is that he will do more damage to his state than to others."
The legislation, introduced June 22, is aimed at buyout firms and hedge funds, but also would affect venture capital firms because they are structured as private partnerships. The House Ways and Means Committee is to hold a hearing on the issue on Sept. 6.
General partners of venture capital firms pay the 15% capital gains tax rate on any profits they earn. Under Levin's bill, that tax rate would continue to apply to profits generated from these partners' personal investments. But all other profits earned would be counted as ordinary income, which carries tax rates of 35%.
"This hurts smaller and regionally based venture capital firms," said Mark Heesen, president of the National Venture Capital Association, which opposes the bill.
He pointed out that venture capital firms play a key role in economic development, helping entrepreneurs grow their companies.
Levin's chief of staff, Hilarie Chambers, said that the proposed higher tax rates would not harm venture capital investment in Michigan. Venture capital firms are providing a service so they should be taxed at the same rate as other service providers, she said.
"From our point of view, this is an issue of tax equity," she said.
The threat of higher taxes comes as Michigan's slightly more than a dozen venture capital firms are struggling to attract more capital and management talent. They face competition from the coasts.
Most have raised $25 million or less, small by industry standards.
Contact KATHERINE YUNG at 313-222-8763 or kyung@freepress.com
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