Forbes: How Budget Reconciliation’s IRA Regs Undermine Bipartisan JOBS Act


By: John Berlau

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.

Though included as a “pay-for” measure to raise revenue, proponents of the IRA restrictions state their rationale more as a matter of “fairness.” They state their aim is to prevent wealthy folks from getting richer through IRA investments in early-stage “unicorns” unavailable to most investors, as did early-stage investors who put money in Facebook and Yelp through their IRAs before the firms went public.  “The intention of these provisions is to level the playing field for low- and moderate-income investors,” a spokeswoman for the Ways and Means Committee said in a statement.

Proponents have a point that it is unfair that middle-class investors can’t access startup firms with high growth potential, but they overlook the reason why the playing field is tilted: regulations aimed at “protecting” non-wealthy investors. For decades, the Securities and Exchange Commission (SEC) – through its category of “accredited investors” — has exempted firms from the panoply of regulations for publicly-traded companies if their investors meet income and wealth thresholds currently set at $1 million for net worth, excluding the value of a principal residence, or an income of at least $200,000 a year or $300,000 with a spouse.

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