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Executive Summary

START-UP CAPITAL GAINS BILL COSPONSORS SOUGHT BY REP. MATSUI and eight other congressmen in an Oct. 10 "Dear Colleague" letter to all House members. Matsui (D-Calif.) and his colleagues plan to introduce the bill by early November. The measure would reduce capital gains tax liabilities for investments in start-up firms and is viewed as a potential boon for the biotechnology industry ("The Pink Sheet" Sept. 30, T&G-9). Matsui said in the letter that the planned "Enterprise Capital Formation Act" takes a "fresh and bipartisan approach to the issue of capital gains by providing lower rates for long-term investment in small companies." The letter is also signed by Democratic Reps. Moody (Wis.), Pickle (Tex.), Andrews (Tex.), and Guarini (N.J.), and Republican Reps. Chandler (Wash.), Vander Jagt (Mich.) and Johnson (Conn.). A Senate companion bill is expected to be sponsored by Sens. Bumpers (D-Ark.) and Brown (R-Colo.). Matsui noted in the letter that the congressional Joint Tax Committee projects that the bill will cost the federal Treasury "under $ 1 bil." over five years. While Sen. Bumpers recently suggested this cost may be an obstacle for the legislation, the House letter characterizes the proposal as accomplishing important goals without "bankrupting the federal government" and as holding promise to "stimulate long-term investment without cheating the future with respect to the budget deficit." The bill's goals, Matsui said, are to "lower the cost of capital for smaller American firms, to encourage patient capital investment and to make smaller firms less reliant on foreign capital." The bill would require that investments be held for at least five years before tax reductions become available. Other reasons the bill deserves support, the letter asserts, are that the measure "recognizes the importance of corporate financing as a source of capital by making corporations as well as individuals eligible" for the tax benefits and that it will include certain restrictions to prevent "abuse."

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