The cost of living is increasing, wages for workers are stagnant, and people are looking for a break. Silicon Valley is getting one instead. According to Bloomberg, a little-known tax benefit known as the Qualified Small Business Stock (QSBS) that has become a favorite carve-out of tech startups would get expanded under a spending bill proposed by Republicans in the Senate and could potentially put more than $17 billion back in the coffers of Silicon Valley execs.
The QSBS provision is a tax exemption that applies to the stock of qualified small businesses like certain tech startups. The rule allows shareholders in one of these businesses to sell or exchange their stock while being exempted from some or all of the capital gains tax that they would otherwise have to pay on those sales. The specifics are a bit complex, but currently, it is set up to allow early-stage investors to benefit if they hold onto their shares for five years.
The proposed changes to the rule, per Bloomberg, would expand the benefit considerably. A provision slipped into the so-called “One Big Beautiful Bill” would allow investors to come in later, cash out earlier, and still score a nice chunk of cash-free income off their investment.
According to data from the Department of the Treasury, about 33,000 people have claimed the QSBS benefit in the last decade. They netted $51 billion in 2021 alone from it, which was a record year. Notably, the Treasury also found that 90% of the income claimed through QSBS came from taxpayers who were reporting more than $1 million of gains—basically, folks who are cashing out big time without paying anywhere near what an average person has to hand over to the federal government.
The Treasury Department projects that the QSBS provision will keep about $44.6 billion from being taxed from 2025 to 2030. If the Republicans’ proposal moves forward, that would add another projected $17.2 billion in revenue that doesn’t come back to the government over that period, according to data provided by the Congressional Joint Committee on Taxation.
According to The Guardian, Silicon Valley executives and employees poured about $394 million into Donald Trump’s 2024 election campaign. So scoring $17.2 billion in tax breaks certainly seems worth the spend. That’s a cool 4,265% return on investment! For what it’s worth, Democratic lawmakers proposed significantly rolling back the QSBS rules back in 2021, in a way that would have slashed the amount of income that could be excluded from taxes in half. Instead, the rich get richer.
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