New Jersey has jumped on the angel investor tax break bandwagon this week after the state’s governor reversed his position on the tax break in an effort to spur job creation in the state.
Gov. Chris Christie signed the bill into law this week, which gives angel investors a tax credit of up to 10 percent of their investment. The $25 million program limits tax credits to $500,000 per investment. Among the stipulations of the bill are that companies have under 225 employees, and that they do research, manufacturing or technology commercialization within the state.
Pennsylvania has been reviewing this kind of legislation too, but although the House voted to approve it, the bill was referred to committee and nothing more has been heard about it. About half of US states offer angel investor tax breaks such as Minnesota and Connecticut.
In 2011, Christie initially rejected the bill, which was part of a package of 14 bills, because he deemed it too costly. Although nearly half of U.S. states have an angel investor tax credit, there is some skepticism surrounding their effectiveness because there has been no proof that these tax breaks actually influence investors to put money in companies they might not otherwise invest with. Critics maintain these investors would have made these investments anyway, but the tax credits just makes it that much cheaper for them.
The counterargument is that at with only 5 percent of startups receiving funding from angels, anything that can be done to encourage investment should be regarded as a plus. In 2011, $22.5 billion in angel investment went to 60,000 entrepreneurs according to the Center for Venture Research at the University of New Hampshire.
In the third quarter last year, health care startups accounted for 37.4 percent of last year’s angel dollars. The rational behind the stipulations of the New Jersey tax break is that life science and technology startups that are launched in New Jersey will stay there, adding jobs as they grow.