Carta Policy: Weekly Brief for July 29 | Carta

Carta Policy: Weekly Brief for July 29

Author:
The Carta Policy Team

Read time:
10 minutes

Published date:
28 July 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

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:

The carried interest provision will directly affect our readers; find details below under Taxation.

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. Thank you to all the partners who engaged to help make the case.

Next steps & politics: Leader Schumer plans to put the bill on the Senate floor next week, while the House—assuming the Senate passes the bill—will return from August recess to vote on the bill in mid-August. That said, political dynamics are fluid. Senate Democrats need every Democratic vote, as well as the vice president’s tie-breaking vote, to pass the bill. House Democrats can only lose four votes, so the margins are thin.

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. The Federal Reserve raised interest rates another 75 basis points, and Chairman Powell reiterated that the Fed would take the necessary measures to bring inflation to 2%, which may come at the cost of contraction.

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. This push towards pay transparency is a growing trend and one companies should be prepared for, as it has vast implications on the ability to attract, retain, and motivate teammates.

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—both in the private and public markets—and whether policy changes could help facilitate secondary liquidity.

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, the lead Republican on the Senate Banking Committee, criticized the SEC’s approach to regulating digital assets through enforcement instead of providing regulatory clarity, which harms both investors and innovation, especially when combined with a “haphazard and apparently sluggish enforcement pace.”

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, evaluates downstream consumer impacts of higher interest rates, and prepares for the age of real-time payments.

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. Carried interest is a share of profits earned by general partners of private equity, venture capital, and hedge funds.

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 to prevent collusion among employers in their competition for workers.

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.