President Obama Signs a Temporary Bill to Encourage More Angel Investing
goodwinprocter.com
goodwinprocter.com
Seems like this bill was custom crafted for some specific person that has already made his move. It seems very unlikely that many investors hearing about this bill today will be able to change their strategy in such a short time period, it would only affect deals where they have the agreement made and paperwork and financing all ready to go with just the final signatures remaining.
Therefore it is not a bill to encourage investment. It is a bill to help out some specific person.
http://www.opencongress.org/bill/111-h5297/text
And related tax code:
You then hold it for at least 5 years, and subject to the other provisions, it's exempt from federal tax (especially AMT!) when exercised.
So, this is a bet on LT capital gains rates circa 2016+. But, a bet that doesn't particularly cost anything, assuming you were going to start the business in the next 3 months anyway.
"which includes a temporary exclusion for 100% of the gain recognized by non-corporate investors from the sale of qualified small business stock (“QSBS”) acquired after September 27, 2010 and before January 1, 2011"
so the dates apply to "acquired" rather than "recognized." It's pretty ambiguously worded.
• Businesses that performed services in health, law, engineering, architecture, accounting, performing arts, consulting, athletics, financial services or brokerage. • Businesses that have as their principal asset the reputation or skill of one or more employees. • Any banking, insurance, financing, leasing, investing or similar business. • Farming, mining or petroleum production. • Hotels, motels, restaurants and similar businesses.
EDIT: Come on guys, that's really not funny at all? Socialist private businesses? Throw me a frickin' bone here.
Actually, it would be interesting if someone did an analysis of the top 100 humorous comments on HN - it would be very fascinating.
Edit: I kinda had a fear that I would be downvoted for explaining.. oh well
Downmod away.
It sounds like this could benefit people exercising options. At least, I don't recall reading anything that would preclude these benefits from being applied to option purchases.
Does anyone have any insight into this?
If you want to encourage investment in startups doesn't this have to be permanent - not just a hand out for deals that are already in progress.
(assuming it's not just a technical point that it needs a special bill for the current year and then becomes permanent as part of some other legislation)
It's like trying to boost car workers jobs by saying any new car bought today only is tax free - that doesn't exactly motivate makers to open new plants.
Can I invest some of my own money to save some money in taxes down the line if I pay dividends to investors?
This also encourages founders to bring early employees into equity ownership by purchasing founders stock, vs. options, so those employees can get this favorable treatment. (generally, buying your stock with a right of repurchase ends up being a win because it converts ST to LT capital gains, anyway).
i.e. on day 0, the company is worth $10k, because the founder puts in $8k of his own money, and the first 4 employees buy their grants for $500 each.
A more realistic hypothesis is that they've figured out that a long term approach is dumb. A bill that has to be renewed every six months gives folks two reasons a year to "help" the legislators.
Remember, "reform" means "we need to get more money from supporters".
Just get one guy to write a $2 million dollar check to the Chamber of Commerce and you're good to go. After all, it's freedom of speech, according to the Citizens United ruling.
LLCs are corporations.
I wonder what the bill actually says.
Minimal effect, and on top of it, it is overwhelmed by bills already signed that do significant damage to the economy. For instance, the bill that massively increases the size of government, putting a permanent burden in taxation or inflation on the economy that Obama claims will "Stimulate" it. Making things more expensive and preventing businesses from expanding is not stimulative. Adding more workers to the government payroll is a drain.
Which bill is it that massively increases the size of government?
i.e. Is it meaningful to loathe an increase in the size of government if the effort will reduce the net cost of government?
e.g. Suppose we could hire a thousand accounts at a hundred thousand dollars a year to go over the defense budget with a fine-toothed comb. If the effect of adding these accountants was a cost reduction of several billion dollars per year, have we expanded government?
Looking at one side of the equation it's trivial to see that we have. But looking at the whole equation, in context, it's just as trivial to see that we haven't; not in any practical, useful sense.
So pardon me if I'm deeply skeptical of people arguing about only one side of the equation and with subjective measurements to boot.
When has increasing the size of the government EVER reduced the net cost?
"Suppose we could hire a thousand accounts at a hundred thousand dollars a year to go over the defense budget with a fine-toothed comb. If the effect of adding these accountants was a cost reduction of several billion dollars per year, have we expanded government?"
The question is: If they hire these accountants and they don't reduce the overall cost by several billion dollars, can we fire them? Also, who decides how long we are going to wait and see if they will be successful..and how long would be considered successful? 1 year? 5? 10?
My other problem is that the Democrats will never admit when something just doesn't work. If a tax hike fails to improve the economy, we either didn't increase taxes enough (or fast enough) or the economy is so bad because of Bush that anybody in their position would have a problem. The faithful Democrat voter believes this crap and we get to keep repeating things that have already been shown to fail.
Isn't that exactly what the CBO has estimated as the result of health care reform? A reduction in the deficit despite the increase in scope (and thus surely number of desks) of government?
> "The question is: If they hire these accountants and they don't reduce the overall cost by several billion dollars, can we fire them?"
I was making a point about the whole equation. If you absorbed my point you would already know that my answer is an unqualified "absolutely".
> "If a tax hike fails to improve the economy" No-one has proposed that tax hikes will improve the economy. Tax hikes are proposed to reduce the deficit. Which, by definition, would depress the economy.
I have to tell you, it's pretty difficult to talk to people who are so certain they know what the other party is thinking and how they will react.
I don't know if I believe it. I would have to see the numbers. For years, people have claimed how great France has been with it's many social programs. Now, after creating a society that is dependent on these programs, they can't even cut it a little bit (because they are running out of money) without violent riots in the streets.
Also, Even though the deficit is reduced, overall quality has also been reduced. I have many relatives in Canada and they all come over here for any major surgery because of the waiting lists.
Greece is very similar. I've heard from many Democrats that the reason it's doing so poorly is because they didn't get enough in taxes (not the ridiculous social programs that just don't work in the long-run). This is exactly what I am talking about.
"If you absorbed my point you would already know that my answer is an unqualified "absolutely"."
You say this now..and it does sound great. But reality shows that it never happens this way. Governments are generally very inefficient and bloated. They also have no incentive to save money since it all comes from the taxpayers. Running a successful government and a successful business aren't really that different.
If you get funding from the government and you spend less, guess what happens? You get less money the next year...so most will spend it all, even though they don't need to.
"I have to tell you, it's pretty difficult to talk to people who are so certain they know what the other party is thinking and how they will react."
The best way to predict someone's future actions is to look at what they've done in the past. This is because for the most part, people don't change. This logic also applies to future spouses, friends, and bosses. I would really like the Democratic party to prove me wrong.
It's not difficult to talk to me. You just don't have a very good convincing argument.
... that almost all economists agreed would stimulate it. Important clarification.
... because they did.