The measure, which was introduced last week, would tax stock options when employees receive the right to them instead of when they are exercised (which is the current policy). That means employees may owe taxes on something they don't yet own.
Silicon Valley heavyweights like Y Combinator president Sam Altman, Facebook co-founder Dustin Moskovitz, and PayPal co-founder Max Levchin urged the Senate to eliminate the proposal, saying it would hurt their ability to recruit and retain talent. Startups typically offer stock compensation in addition to salary, and without that option, they can't compete with larger companies that have more cash to offer.
"A startup's ability to issue stock options levels the playing field by giving potential employees something unique: the ability to share in the company's rewards as well as its risks and participate in the upside of a new and exciting venture," companies including Lyft, Medium, and Vimeo wrote in a letter to the Senate.
While Silicon Valley is ferociously fighting the provision, there are still many steps before the proposal becomes law. Alternatively, the House's tax reform bill would ask employees to pay taxes when their shares are exercised through an acquisition, IPO, or other event that turns the stock to cash.