R&D tax bill dies in the Senate

Topline

• Senate rejects bill to reinstate R&D expensing

• Crypto gains bipartisan traction going into election

• FDIC eyes changes on brokered deposits, targeting fintechs and neobanks

• Delaware amends governance laws to keep business interest

Programming note: Congress is breaking for August recess and hitting the campaign trail. Given that, the Carta Policy team will also be taking a break from the standing policy newsletter to instead share a few special election-focused iterations. Stay tuned for the first edition next week.

Senate fails to advance bill to reinstate R&D expensing

The Senate rejected a tax package that had seemed promising in the spring, but it failed along partisan lines by a vote of 48-44, well short of the 60 votes needed to proceed. The legislation would have expanded the child tax credit and reinstated important business tax breaks, including immediate R&D expensing. The House passed the bill earlier this year with a strong bipartisan vote, but the package has faced an increasingly uphill battle in the Senate as Republicans on the tax writing committee opposed the scope of the child tax credit extension. Although the effort was expected to fail, Majority Leader Chuck Schumer held the messaging vote to force senators to mark their positions and arm vulnerable Democrats with a few additional talking points for the campaign trail.

Why it matters: Efforts have already shifted to prepare a 2025 tax package that, while not a guarantee, has much better odds of passing than the narrower 2024 bill. Next year will feature a sprint to address the bulk of the expiring Tax Cuts and Jobs Act (TCJA). In anticipation of the flurry of tax activity, Carta is already engaging lawmakers on the policies critical to small businesses and innovation, including:

• Expanding qualified small business stock (QSBS) eligibility to more businesses to spur job creation and incentivize long-term investment in startups and small businesses.

• Preserving tax treatment for long-term capital gains and carried interest to incentivize long-term investment in the private markets.

• Promoting corporate investment in innovation to restore full R&D expensing costs to boost innovation.

• Aligning taxation to the year that shares are sold to help employees realize the full value of their hard-earned equity, and extending the duration of the post-termination exercise period to better enable former employees to exercise their options and own the equity they earned following their departure from a company.

Crypto political engagement drives bipartisan policy focus

• Republicans: Former President Donald Trump headlined the Bitcoin2024 conference, where he endorsed a number of pro-crypto policies, including creating a strategic bitcoin reserve, creating a crypto advisory council, and protecting self-custody—positions that were also reflected in the Republican policy platform. 

• Democrats: A growing faction of Democrats are also embracing the industry and pushing the party to take a more “forward-looking approach” to digital assets and blockchain technology than the Biden administration. This includes increasing engagement with the industry, appointing a pro-innovation SEC chair, and including pro-crypto language in the party platform. The tech industry is optimistic a Harris administration would be more receptive. Crypto industry leaders are expected to meet with White House officials and the Harris team next week

• Congress: On the legislative front, members continue to push legislation to create a market structure framework. While the legislative clock may run out this Congress, the bipartisan enthusiasm will make crypto regulation a priority next Congress, regardless of the party in charge. 

FDIC proposes new treatment of brokered deposits for banks, neobanks, and fintechs

The FDIC proposed changes to its brokered deposit rules that would affect fintechs and neobanks, along with their customers, rolling back many of the changes implemented at the end of the Trump administration in 2020. 

Quick background: A deposit is brokered when it originates from an intermediary rather than a customer. This is typically done when a third party routes the deposit through brokering a CD or managing a sweep program that places uninvested funds into accounts at one or more banks. For context, a core deposit is when you—the reliable and brilliant policy weekly reader—deposit money into a checking or savings account at an insured depository institution (i.e. bank).

The FDIC’s proposal would: 

• Expand the definition of “deposit broker” to now encompass if fees are paid for placement

• Eliminate the exclusive deposit carveout, which enabled third parties that worked only with one insured depository institution to avoid being considered a deposit broker.

• Revise the process to qualify for a primary purpose exception (PPE), along with the analysis to determine whether an entity qualifies. The PPE excludes entities whose primary purpose is something other than placing deposits. 

Why it matters: Neobanks and fintechs rely heavily on the existing brokered deposit rule. It is the foundation for their deposit relationships for their bank partnerships—and in many cases, how FDIC insurance is secured for their customers. This proposal would pull more third parties into the deposit broker definition, changing who is considered and how banks treat those deposits. For instance, even the FDIC acknowledges in its rulemaking, neobank and fintech consumers (retail and businesses, potentially) “might experience changes in interest rates on those funds, or costs associated with placing those funds with different entities.” The rule is in proposed form, but the outgoing FDIC Chair seems intent to move quickly to adopt these changes.

New Delaware corporate law amendments take effect

On August 1, a number of amendments to Delaware’s corporate law became effective. These amendments address uncertainties created by recent Chancery Court decisions that many in the business community viewed as contrary to current market practice. Among others, these amendments:

• Permit companies to confer governance rights to certain stockholders outside of the operating documents.

• Permit parties to a merger agreement to provide for penalties in the event of breach and allow target companies to recover lost merger premiums in busted deals.

• Provide clarity that boards of directors can approve merger and similar agreements in “substantially final” form.

Why it matters: Most public and private companies incorporate in Delaware because of its established body of corporate law—and it is a major source of revenue for the state. Recent court decisions, however, have led to uncertainty in Delaware corporate law and a growing chorus of voices that companies should incorporate elsewhere. The new amendments attempt to mitigate many of these concerns.

News to know

• Harris triggers crypto tug-of-war between Democrats (Politico)

• Republican ESG Working Group releases final staff report (House Financial Services Committee)

• Commerce Committee passes bipartisan bill to ensure U.S. leads global AI innovation (Senate Commerce Committee)

• FTC and DOJ extend public comment on request for information targeting serial acquisitions, roll-up strategies across U.S. economy (Federal Trade Commission)

• Ranking Member Waters urges financial regulators to modernize Customer Identification Program rules to address privacy concerns and protect consumers (House Financial Services Committee)

Sign up below to receive Carta’s Policy Weekly Brief: