Silicon Valley criticizes GOP proposal to tax employees’ stocks

Silicon Valley investors and firms are speaking out against a provision in the Senate Republican tax-reform plan that would change how employees are taxed on stock-based compensation.

The provision in the Senate plan unveiled last week would tax employees once they acquire shares in a company, instead of just taxing the capital gains on shares after they are sold.

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500 signatories, including Facebook co-founder Dustin Moskovitz and Y Combinator head Sam Altman, as well as tech firms Uber, Airbnb and Dropbox, urged the Senate to drop the measure in a letter to Senate Finance Committee Chairman Orrin Hatch (R-Utah).

“We cannot overemphasize how essential stock-based compensation is to a startup’s ability to recruit and retain talent,” they wrote.

“Startups do not have the ability to compete with larger firms based upon cash compensation. A startup’s ability to issue stock options levels the playing field by giving potential employees something unique: the ability to share in the company’s rewards as well as its risks and participate in the upside of a new and exciting venture.”

Many startup companies — in Silicon Valley and elsewhere — in their early stages offer equity to employees as compensation when they have less cash on hand. If the company is successful and grows, the value of those shares increases as well.

The letter was organized by the startup advocacy group Engine, and highlights divisions within the tech community over the Senate GOP tax reform plan.

Larger tech companies and telecommunications firms have been supportive of the bill, which would benefit them with lower corporate rates.

AT&T has said that if the plan passes it will invest an extra $1 billion in the U.S.