House Majority Leader Kevin McCarthy (R., Calif.) and Rep. Erik Paulsen (R., Minn.) recently penned an opinion item at The Mercury News (Silicon Valley, Calif.) Online where the lawmakers indicated that, “As anyone who has tried to start a business or turn an idea into a reality knows, the most difficult period to stay afloat is at the beginning. In the startup world, it is particularly hard to find and retain employees in the earliest stages.
“Startups don’t have the resources to compete with well-established companies, and they can’t offer potential employees the same salary and benefits as employers that have already become household names. However, startups can offer employees something potentially worth much more than a decent paycheck: partial ownership of the company.
“At many startups across the country, stock options make up a significant portion of employees’ compensation while offering employees a greater stake in a project they truly believe in. It remains the case, though, that more and more startup employees aren’t exercising these stock options because if they do, they are required to immediately pay taxes on the income associated with the stock, even though they may not have the available cash to do so.”
The GOP lawmakers noted that, “The solution to this problem is simple. We need to defer the tax either until employees have a reasonable amount of time to pay it or until their stock becomes tradable on an established market and they can sell stocks to pay the bill.
“That is the purpose of Rep. Erik Paulsen’s Empowering Employees Through Stock Ownership Act, part of the House’s Innovation Initiative, which recently passed the House with bipartisan support and now goes to the Senate.
“This legislation allows employees who own less than 1 percent of the stock of a privately held company that offers stock options to at least 80 percent of its employees to defer tax payments for seven years or until they are actually able to sell their stock, whichever comes first.”
The opinion item added that, “The innovation economy is the key to America’s economic future, and a growing economy is the foundation of a stronger and more confident America for everybody. Giving startups room to grow at their inception and attract creative talent will keep America at the forefront of innovation, ensuring continued American leadership in the 21st century.”
