There is much discussion among lawmakers and the Governor this year about how we will prioritize the many needs of the state. Education – all day kindergarten, universities, and k-12 – all want a piece. Then there are the requirements of the State to back fill the financial fallout of Prop 206 in the way of increasing funds to developmentally disabled car providers.
Amid all these constituents who are making their case for additional money – one hand out should raise a lot of eye brows. And that’s the hand (probably dressed in a very expensive suit) of some venture capitalists in the state.
SB1212, the ‘Angel Investor Tax Credit Bill’, is not as sweet sounding as its Orwellian assigned name indicates. A more apt name would be to call it the Shark Tank Bill because of its many similarities to the hit TV Show, with one difference: wealthy investors get a tax credit for making their risky venture capital investments.
Under the bill government employees at the Arizona Commerce Authority will dole out tax credits to “qualified” investors to hedge their potential losses in risky new start-up companies. The argument made to defend the program is Arizona needs the tax credits to attract more investors into Arizona and that without them, good ideas in Arizona won’t find capital. This of course is not true. Good business ideas and plans can always find money to get off the ground because investors stand to gain millions of dollars in profit to do so.
The reality is, if a business is unable to attract the start-up capital it needs, perhaps the venture is not seen as viable, or scalable or profitable enough. If that is the case, why would taxpayers be expected to flip the bill for it? After all, we don’t stand to benefit monetarily from the businesses’ success, why should we therefore shoulder the losses of its failures? And if a business was to attract the necessary start-up capital regardless of the tax credit, why are taxpayers subsidizing a business activity which would have occurred anyway?
Venture capital investing is inherently risky. Successful speculations have the potential to enrich their investors immensely. However, it is the risk itself and the profit motive which tempers the activity, and incentivizes investors to be prudent. The Arizona Commerce Authority is not better equipped than the free market to facilitate these types of transactions.
Taxpayers should not be in the business of subsidizing risky venture capital investments by wealthy investors. It’s a program that picks winners and losers among taxpayers, among venture capital investors, and among aspiring entrepreneurs.
Lawmakers should continue to stay out of the venture capital business and reject SB 1212.
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