Venture capitalist Alan Patricof: Capital gains tax hike would not change investor behavior

Alan Patricof, a longtime tech investor and Democratic donor, told CNBC on Monday he is not concerned about the prospect of higher capital gains taxes for wealthy Americans.

In an interview on “Closing Bell,” the co-founder of venture capital firm Greycroft did not throw his support behind a specific rate for the capital gains tax. He also suggested the proposal recently put out by President Joe Biden will likely “be modified in some way” after negotiations in Congress, where Republicans have expressed opposition.

However, Patricof said behavior is unlikely to be swayed by a capital gains tax increase, particularly as it relates to investing in young companies. Some venture capitalists, such as Tim Draper, have contended that Biden’s proposal could negatively impact Silicon Valley.

“I believe that the amount of money that will be put into start-ups will be just as strong as it is now,”  Patricof said. “Entrepreneurs are not going to stop and say, ‘Gee whiz, the capital gains rate is going up. I better not start my company.'”

“Venture capitalists like me are not all of a sudden going to turn their money back into their funds and say, ‘Gee whiz, the rate is going up, so we can’t justify making investments anymore,” added Patricof, an early investor in Apple and AOL.

Biden’s recent proposal calls for raising the tax rate on long-term capital gains to 39.6% from 20% for Americans who have an annual income of more than $1 million. The 3.8% net investment income tax that’s already law would effectively lift the top rate to 43.4%.

Biden’s American Families Plan also calls for raising the top income tax rate to 39.6% from 37%.

Additionally, a White House fact sheet for the plan says that Biden “is also calling on Congress to close the carried interest loophole,” which benefits managers of hedge funds, venture capital funds and private equity funds.

Patricof, whose venture-capital career has stretched over 40 years, has long advocated for the elimination of the carried-interest loophole, including in a 2016 opinion article for The New York Times.

Patricof told CNBC he believes narrowing the differential in tax rates on wages and capital gains was “constructive,” without specifically saying whether he thought they should be placed at the same level.

“I think that investors in general are going to invest their money the way they have before, and I think that new companies will be started. I think that funds will be formed. Private equity will prosper,” Patricof said.

“I think you’ve seen it in the market,” he added. “I mean, the market is not collapsing because of his announced [proposed] change in rate. Everyone is expecting that the capital gains rate is going to go up. I don’t think it’s going to change behavior.”

Patricof donated thousands of dollars to Biden’s 2020 presidential campaign, as well as to the Biden Victory Fund, a joint fundraising committee, according to Federal Election Commission records.