Washington – Sen. Chris Murphy would give “angel” investors a new federal tax break and is also co-sponsoring another bill introduced Thursday that would erase a barrier between those investors and start-up companies that need their money.
Murphy’s “Angel Tax Credit Act” would give individual investors, known as “angels” a new 25 percent federal tax break if they put at least $25,000 of their money in U.S.-based, high-tech startups.
Murphy said the tax credit would create a funding pipeline to grow startups, and help target job growth in “industries with a significant (job) multiplier effect,” mainly the science, technology and engineering fields.
“These industries give us the most bang for our buck,” Murphy said.
His legislation is modeled after a state law that allows Connecticut investors who funnel at least $100,000 to an early-stage business in certain sectors to take a 25 percent tax credit on that investment.
The Angel Resource Institute, a non-profit research organization, said investment by individuals, as opposed to traditional venture capital (pooled money among a group of investors) is increasing, reaching more than $1.65 billion last year.
Meanwhile, the institute said venture capital is concentrated in metropolitan areas, especially technology hubs like New York City, Boston and Silicon Valley in California.
While the Angel Capital Association backs Murphy’s bill, some consumer groups say it would unfairly give a handout to the rich.
“Technology startups are swimming in money and their investors hardly need a subsidy,” said Bartlett Collins Naylor, a financial policy advocate for Public Citizen, a consumer advocacy group.
Murphy also is reintroducing the bill – it was first introduced at the end of the last Congress – at a time when lawmakers are trying to find ways to eliminate loopholes in the tax code.
The tax break would also cost the government revenue, but Murphy said how much has not been determined yet.
Murphy said the Helping Angels Lead Our Startups (HALOS) Act, which was also introduced on Thursday, may have a better chance of winning congressional approval.
The bill, which has bipartisan support with the backing of Sens. John Thune, R-S.D., and Pat Toomey, R-Pa., would modify a provision in new federal law aimed at protecting startups by tightening accreditation requirements for prospective investors who want to attend “demo days,” which Murphy described as “college fairs for start-up companies.”
The HALOS Act would ease the accreditation requirements, making it easier for investors and startups to connect on “demo days.”