The venture capital community is making a plea to both presidential candidates: "Don't tax us to death."
Republican Donald Trump and Democrat Hillary Clinton have said they intend to close a tax loophole that lets VC, private equity and hedge fund firms pay only around a 24 percent tax rate on what are sometimes hugely profitable investments. It's called "carried interest."
Venture capitalist Venky Ganesan of Menlo Ventures says it's actually more.
"Total tax, both federal and state, is around 36 percent for venture capital," he said. "This change would make it 59 percent. Now if you get to the point where the government gets 60 cents of every dollar you make, will people have the incentive to do these very risky things?"
VCs claim the average venture capital investment loses money 42 percent of the time, and it typically takes eight years to make gains on an investment.
Not all VCs agree they should continue to receive the tax break. Last year, Y Combinator President Sam Altman said in a speech to “Inside Bloomberg” that he should be taxed on his profitable investments, and the tax loophole made no sense.
"I think it's ridiculous that we get a tax break on carried interest," he said. "There's no way. There's no logical way that I can justify the returns that we earn managing other people's money."
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Altman says he donates the money that should have gone to taxes.
"Oh, I think we should be taxed like ordinary income, and I donate my difference," he said.
Ganesan says while venture capital is a very profitable business, he notes they’re also creating jobs, so the tax break should stay.
"Over 42 percent of companies that go public on the Nasdaq are venture backed," he said. "We've created over 3 million jobs; that's a great payback. That's a reason to keep supporting this."
