Open Letter to Congress

Increasing Capital Gains Taxes Not Good for the Economy or Entrepreneurs

Dear Member of the U.S. Congress:

In order to get the economy back on a robust path of economic growth, entrepreneurs and small businesses need capital.

Of course, however, investing in the start up or expansion of a business is a high-risk undertaking.  Small businesses and the economy do not need legislation that would raise the cost and reduce the potential returns on entrepreneurship and investment.

The Small Business & Entrepreneurship Council (SBE Council) is very concerned about current proposals relating to the taxation of capital gains. The measures currently in the mix will either accomplish nothing, or reduce private-sector risk taking.  

For example, the economic stimulus package signed into law in February included a temporary capital gains tax cut. For certain types of stock in small businesses, if purchased in 2009 or 2010 and held for at least five years, the capital gains tax exclusion would rise from 50 percent to 75 percent. That was far too narrow, though, to have any substantive effect on small business and the economy.

As for President Obama's budget plan, there are two capital gains tax measures. First, the President carried through on his campaign pledge to eliminate the capital gains tax for certain small businesses. Unfortunately, many details remain elusive, but it is clear that this zero percent capital gains tax for certain small businesses would not go into effect until some time in 2014. That's a vague promise for a likely far too limited tax cut taking effect five years from now, when entrepreneurs and the economy desperately need help now.

Second, the top capital gains tax paid by individuals would jump by 33 percent, from 15% to 20%, in 2010 for married tax filers earning more than $250,000 a year and single tax filers earning more than $200,000.

While entrepreneurs and businesses in general desperately need capital, the President is proposing to raise the capital gains tax, thereby reducing the potential returns on starting up, building and investing in businesses.

Meaningless posturing on the important issue of capital gains taxation will not help the economy. And we certainly do not need higher capital gains taxes that raise the costs for building businesses and creating jobs.

These measures need to be replaced by steps that would make a real difference. At the very least, the top 15% current capital gains tax rate should be left in place. But more should be done, such as lowering both the individual and corporate capital gains tax rates to 10 percent, and indexing all gains for inflation would be big plusses for the economy in the near term and over the long haul.

SBE Council urges you to oppose any hike in the capital gains tax rate.  Our nation's entrepreneurs need as much capital as they can get, and diminishing their access to capital through higher tax rates will only inflict more harm on our economy and hurt U.S. competitiveness.

Thank you for considering the views of our nation's entrepreneurs.

Sincerely,

Karen Kerrigan, President & CEO