Reconciliation Bill Provision Threatens IRA Holders’ Investing Opportunities

A couple of  weeks back, I commented, in a Competitive Enterprise Institute blog post, on a provision of the $3.5 trillion budget reconciliation bill that would ban IRA holders from investing in most startups. Noting progressive proponents’ claim that the provision was aimed at wealthy “accredited investors,” I asked if it would really be “more ‘progressive’ to force accredited IRA holders to invest in publicly traded big banks or big tech companies, or stocks traded on foreign exchanges that will still be eligible to be held by IRAs, rather than American startups.”

Whatever the answer to that question, one reader brought up the fact that—whether by design or intention—the provision would also likely ban investments from middle-class IRA holders in startups specifically authorized by the Jumpstart Our Business Startups (JOBS) Act, the bipartisan and modestly deregulatory capital-raising bill signed by President Obama in 2012. A House Ways and Means committee spokeswoman did not deny to me that the reconciliation bill recently voted out of committee would have this effect on IRA investing in JOBS Act ventures, but said that Chairman Richard Neal (D-MA) and his “policy staff are open to modifications to ensure we get these proposals right.”

As I say in the Forbes piece excerpted and linked to below, “if that is the case, they should consider the progress the JOBS Act has spurred on financial inclusion.” I note the important study by the Small Business and Entrepreneurship Council and the economic consulting firm Crowdfund Capital Advisors that found that in the utilization of one part of the JOBS Act, Congressional districts represented by minorities “are experiencing success at nearly equal rates as districts as a whole.” I also quote Isaac Hayes III—son of the late legendary soul musician (whose real name was Isaac Hayes, Jr.)—who successfully used the JOBS Act to raise more than $3 million on the equity crowdfunding portal StartEngine for his social media platform Fanbase. Hayes emphasized to me that the JOBS Act is “providing access and opportunity for people who don’t always have it.”

Below is an excerpt from my Forbes piece, “How Budget Reconciliation’s IRA Regs Undermine Bipartisan JOBS Act.”Read the entire article here.

In 2012, President Barack Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, a bipartisan bill that reduced regulatory barriers preventing ordinary Americans from investing in the ventures of small entrepreneurs. In remarks at the signing ceremony, Mr. Obama declared that “because of this bill, start-ups and small business will now have access to a big, new pool of potential investors—namely, the American people.”

But now a provision of the $3.5 trillion budget reconciliation bill advanced by Obama’s own party would substantially drain that pool, shrinking funding for startup entrepreneurs and diminishing the opportunity for ordinary investors to grow wealthy with them. Section 138312 of the bill recently voted out of the House Ways and Means Committee along party lines would ban IRAs from holding shares in most companies that don’t trade on major U.S stock exchanges, including those utilizing provisions of the JOBS Act that Obama championed.