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Minnesota lawmakers on both sides of the aisle want to enact financial incentives for investors in small, start-up companies. A new House Research report, however, questions the conventional wisdom of giving tax credits to angel investors.

Paper Trail: Lenczewski stokes debate on angel investor incentives

Minnesota lawmakers on both sides of the aisle this session want to enact financial incentives that nudge investors toward putting their money into start-up companies.

Gov. Tim Pawlenty plans to unveil a so-called angel investor tax credit proposal in his supplemental budget. The Republican governor’s proposal will be nearly identical to a bill sponsored by Rep. Jim Davnie, DFL-Minneapolis, an unlikely tandem that drew laughs in committee this morning for being labeled the “Pawlenty/Davnie bill.”

Business lobbyists gathered at the joint Taxes and Bioscience committee hearing weren’t laughing, however, about House Research attorney Joel Michael’s report that compared Minnesota and Wisconsin’s laws and performance in attracting start-up companies.

Headlines were generated last year when two Minnesota technology firms moved across the St. Croix River to take advantage of the Badger State’s angel tax credit and other incentives.

Michael’s report, which was conducted at the request of House Taxes Chairwoman Ann Lenczewski, DFL-Bloomington, questioned several points that had been made to the committee in testimony by angel credit advocates.

The report noted that substantially more venture capital is raised per capita in Minnesota than Wisconsin. The report also explains several policy problems with tax credits to investors compared to grants to companies. Michael said that some of the testimony presented in favor of tax credits rather than grants  had been “misleading.”

The report and Lenczewski’s criticism of angel tax credits sent the crowd of angel investor advocates into a tizzy.

Jay Hare, a partner at PricewaterhouseCoopers, responded that Michael’s report doesn’t take into account the rate of growth.

One lobbyist, who was fuming about the report after the hearing, noted that the debate could get ugly as it plays out this session.


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