Capital Gains Tax Breaks Likely to Stay in Bill

Capital gains tax breaks for those who invest in new and smaller businesses are likely to be included in the final tax package being hammered out on Capitol Hill, lobbyists, industry officials and analysts say.

The provisions would lower the tax rate on capital gains for individuals that invest in small businesses to 10%--half the proposed rate for other capital gains. In addition, corporations would be able to exclude 50% of their capital gains in small companies, as long as they held their investments for at least five years.

Taken together, the changes could create an infusion of capital for small start-up companies such as drug research firms.

“It should increase the pool of available venture capital because now you are bringing new players in,” said Rick Grafmeyer, who watches Congress for the accounting firm of Ernst & Young. “For big businesses that are looking for new technology it allows them to be bigger players in the venture capital markets.”

Grafmeyer and others say the changes have a good chance of becoming law.

“We’re reasonably optimistic it’ll be in there,” said Chuck Ludlam, a lobbyist for the Biotechnology Industry Organization, a Washington D.C.-based trade group.

Under the Senate-passed plan, individual investors would pay only a 10% tax rate on investment gains in stocks of firms with a market capitalization of $100 million or less. Under current law, individual can exclude 50% of the gain from the sale of some stock in small businesses with $50 million or less. The change is designed to encourage new investment in emerging companies and technology.

Lawmakers say they plan to complete and the pass the final bill by Aug. 1. President Clinton, though demanding changes in the final package, has thus far not threatened to veto the bill.