As the Senate Finance Committee considered a Democraticcaucus decision to drop a biotechnology-friendly venturecapital incentive from a budget reconciliation bill on Thursday,industry representatives said the real losers could be privateinvestors and entrepreneurs.
Sen. Dale Bumpers, D-Ark., introduced a proposed cut intargeted capital gains taxes that would reduce the tax bite 20percent for every 12 months of investment in technologycompanies, but a caucus of Senate Democrats decidedWednesday to drop the proposal from a budget reconciliationbill.
Meanwhile, President Clinton proposed reducing thecapitalization limit from $100 million to $50 million.
The caucus decision was intended to make up for a lack inrevenue from Clinton's proposed BTU (British thermal unit)energy tax that Senate Democrats refused to endorse.
"I knew it would become a bargaining chip," said PatriciaCloherty, president of Patricof & Co. Ventures Inc. andpresident-elect of the National Venture Capital Association."We're in an unprecedented quagmire on national economicissues," she said, "and it's a politically timely issue to the extentone looks for economic growth."
Private citizens have a better track record in evaluating riskand predicting the future than government programs andprojects, said Kevin J. Kinsella, managing general partner ofAvalon Ventures. "This is pandering to popular misconceptionsof how wealth is created," he said.
Venture capital funds are primarily tax-exempt, Cloherty said,similar to pension and endowment funds.People who provide venture capital backing for emergingcompanies, Kinsella said, "are the vanguard for an enormousamount of people out there who would benefit (from a capitalgains tax cut) -- individual investors and entrepreneurs.They've been unheard."
Cynthia Robbins-Roth, publisher of BioVenture View, said: "Aslong as biotech start-ups provide the rates of return they have,venture capitalists will continue to invest whether they get acapital gains tax or not. But the circle of potential investorsmight not broaden."
Jonathan MacQuitty, president of privately held GenPharmInternational of Mountain View, Calif., has been watching theBumpers bill closely, and told BioWorld that the "very targeted"proposal "would have been very effective in bringing moneyinto small companies. ... It would certainly warm up the verycold financial environment."
Carl Feldbaum, president of the Biotechnology IndustryOrganization, called on President Clinton to oppose theevisceration of the Bumpers bill, saying, "We cannot see howthe president could possibly support the committee'sabandonment of the incentives necessary to fulfill hiscommitments on the creation of new jobs, better economicgrowth and stronger market competitiveness."
If the Senate fails to include the venture capital incentive in itsbill (the measure was left in the House version), the issue willbe decided in a House-Senate conference.
-- Nancy Garcia Associate Editor
(c) 1997 American Health Consultants. All rights reserved.