Carta Policy: Weekly Brief for July 29

Author:
The Carta Policy Team
Read time:
10 minutes
Published date:
July 28, 2022

Major breakthrough on tax and climate package. Proposed bill includes tax hike on carried interest, but QSBS and IRA private investment spared.

The Topline

• Sen. Manchin surprises everyone, pivots on prior opposition to climate spending and tax bill
• Manchin/Schumer agreement to limit carried interest tax advantage, with significant implications for private equity and venture capital
• House passes modified DEAL Act, which could expand qualifying investments for venture capital funds
• FTC sues Meta to block merger, while antitrust legislation addressing Big Tech lacks necessary support to move forward

Macro matters

Tax deal curtails carried interest, maintains QSBS

Senate Majority Leader Chuck Schumer and Senator Joe Manchin shocked the policy world Wednesday night by announcing a tax deal, the Inflation Reduction Act of 2022. The bill would:

• Invest $433 billion in:
  • Energy and climate tax credits
  • Affordable Care Act extensions
• Raise revenues by $739 billion through:
  • 15% corporate minimum tax
  • Prescription drug pricing reform
  • IRS tax enforcement
  • Carried interest limitation
• Reduce the deficit by $306 billion

QSBS and IRA private asset investment both remain intact—for now

The proposed legislation does not affect qualified small business stock tax treatment or restrict the ability of IRAs to invest in private assets. Carta worked with coalition partners over the last year on both of these issues and is pleased to report that our coalition efforts were successful.

Next steps & politics: Leader Schumer plans to put the bill on the Senate floor next week.

Economic outlook

The U.S. economy contracted for the second straight quarter as growth fell at a 0.9% annual rate during Q2. The IMF cut its global growth forecast by 0.4%, projecting it will fall from 6.1% last year to 3.2% in 2022.

Carta & pay transparency

On Nov. 1, New York City will require employers to publish wage ranges for open roles. To help companies prepare, Carta released complete sets of NYC salary and equity bands for a few key job areas.

Capital markets

House passes DEAL Act to expand VC secondary investments

This week, the House unanimously passed the Developing and Empowering our Aspiring Leaders (DEAL) Act, which would ask the SEC to allow investments in qualifying portfolio companies acquired through secondary transactions to be considered “qualifying investments” under the venture capital fund rules.

SEC advisory committee to meet to discuss liquidity challenges for small business investors

Next week, the SEC’s Small Business Capital Formation Advisory Committee will meet to discuss liquidity challenges investors in small and emerging businesses are facing.

SEC launches educational resources to help navigate capital raising process

The SEC launched its Small Business Capital Raising Hub, which centralizes resources designed to help small businesses and their investors navigate the capital raising regulatory framework.

Crypto & digital Assets

No agreement on stablecoin framework, though negotiations continue

House Financial Services Committee Chairwoman Maxine Waters and Ranking Member Patrick McHenry were unable to come to an agreement on a highly anticipated bill that would provide a regulatory framework for stablecoins before the Committee markup this week.

Congress continues its scrutiny on SEC enforcement-first approach to regulating digital assets

Sen. Pat Toomey criticized the SEC’s approach to regulating digital assets through enforcement instead of providing regulatory clarity.

Banking and financial products

Chopra focussed on BNPL, consumer data, and Section 1033

Consumer Financial Protection Bureau Director Rohit Chopra is pushing forward on an agenda that targets Big Tech’s expansion into financial services.

OCC reviewing fintech’s impact

The Office of the Comptroller of the Currency is calling for new research on how fintechs are impacting the banking industry.

Taxation

Proposed change for carried interest tax

Included in the Inflation Reduction Act is a revived proposal to narrow the advantageous tax treatment for carried interest.

Antitrust, privacy, and technology

Antitrust bill lacks necessary votes

Senate Majority Leader Schumer has indicated that the American Choice and Innovation Act has stalled.

DoJ partners with NLRB to protect workers

In a memorandum of understanding, the Justice Department’s antitrust department announced a partnership with the National Labor Relations Board.

FTC sues Meta to block acquisition of VR fitness app

In a 3-2 vote along party lines, the Federal Trade Commission voted to sue Meta to block it from acquiring virtual-reality company Within Unlimited.