[Congressional Record Volume 143, Number 2 (Thursday, January 9, 1997)]
[Extensions of Remarks]
[Page E84]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              THE ENTERPRISE CAPITAL FORMATION ACT OF 1997

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                         HON. ROBERT T. MATSUI

                             of california

                    in the house of representatives

                       Thursday, January 9, 1997

  Mr. MATSUI. Mr. Speaker, I am pleased to join my House colleagues and 
fellow members of the Ways and Means Committee, Congressman Phil 
English, and Congressman Jim McCrery in a bipartisan effort to promote 
economic growth and job creation through targeted capital gains 
incentives. This legislation is designed to be complimentary to a 
broad-based capital gains proposal similar to that passed by the House 
in the 104th Congress.
  I have worked for many years to enact legislation which provides 
critical incentives for high-risk, high-growth firms. In 1993, I was 
able to work with Senator Bumpers to enact the Enterprise Capital 
Formation Act of 1993. This new, bipartisan proposal is built upon that 
1993 legislation and will greatly improve its effectiveness by:
  Shortening the holding period for qualified stock from 5 years to 3 
years.
  Increasing the size of companies whose stock is eligible for the 
exclusion from $50 million to $100 million.
  Revising certain limitations to make the provision more attractive to 
investors.
  Biotech and high-technology companies are particularly dependent upon 
direct equity investments to fund research and to grow. A targeted 
capital gains incentive is crucial for encouraging investors, including 
venture capital investors, to purchase the stock of these companies, 
thus putting their capital at risk with a long-term speculative 
investment. These small venture-backed companies provide high-skilled 
jobs, grow very quickly to create more jobs and are aggressive 
exporters. Venture capital-backed firms have a much higher rate of 
growth than Fortune 500 firms. From 1990 to 1994, venture firms grew at 
an annual rate of 20 percent while Fortune 500 firms are powerful 
engines for job creation. In their first year, these firms typically 
have 18 employees, by their sixth year they have over 200. Finally, 
these firms perform 2 times the amount of research and development 
compared to nonventure-backed firms.
  Now more than ever, small companies need better access to investment 
capital in order to grow into productive enterprises. The risks 
associated with small firms has often been too great for venture 
capitalist. By giving a capital gains cut for investment in small, 
startup firms, the higher risks are offset by additional financial 
benefit to the investor.

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