A bill being discussed in the U.S. Senate may adversely affect Maine’s small business community. 

Mike Burgmaier, a former Maine-based venture capitalist, said the potential changes could have “pretty significant and negative impacts on the formation of capital funds, which, in turn, could affect small business growth.” 

If passed, the American Jobs and Closing Tax Loopholes Act would raise the tax rate on “carried interest,” the share of profits earned by venture capital funds. 

If investor earnings are truncated by higher taxes, Burgmaier said the talent pool for venture capital firms could shrink.  He explained: “In small funds, the salaries paid to venture capital investors are typically much lower than what they could earn at non-venture capital jobs – where such people often make larger, six-figure salaries.  People who take venture capital jobs are willing to take lower salaries, betting that there will be a long-term payoff if the fund is profitable.” 

If the promise of payout diminishes, Burgmaier said venture capitalists may eschew higher risks that small businesses depend upon:

“Venture capital is one of the major job-creation vehicles for smaller companies that have the potential in this economy to become large companies.

It’s is a huge part of the growth engine for promising start-ups.” 

Timothy Agnew, Principal at the MV Partners venture capital firm, observed that the higher taxes on carried interest may work against Maine’s existing policies: “In Maine, the state has made a commitment to early-stage innovation.  There is already a problem securing venture capital for those businesses.  That’s only going to get worse if we see an increase of the carried interest tax.”

Maine’s moderate Republicans Senators are considered crucial to the vote.  According to a Senate Finance Committee aide, the Senate lacks a filibuster-proof majority, so the bill will require “at least some support from both sides of the aisle.”