Last week, the House voted in favor of the Tax Extenders Act that would, thanks to a last-minute provision, raise tax rates on carried interest to ordinary income rates. The last provision, intended to offset the loss of revenues from other parts of the Act, means that VCs, who have traditionally been taxed 15% on the profits they make when a portfolio company is sold or goes public, will now be taxed at around a 35% rate.

“That is a major, major impact on what’s going to happen to the industry, and it’s basically going to make my job not worth doing over time,” said Norwest Venture Partners' Tim Chang at an SDForum event on Friday. Norwest pulled in a $1.2 billion fund from LPs this year--the biggest VC fund in ‘09. “Many of us are just going to leave and go to China, where I think time will prove that a centralized communist capitalist system is far superior to a democratic socialist system.”

The NVCA has been lobbying hard against the legislation the past several months, arguing that venture capital is a major engine for new job creation.

“Increasing the taxes of long term investors whose commitment to building companies and creating jobs has been proven for decades is counter productive to the one goal on which our country should be focused – economic recovery,” Mark Heesen, president of the NVCA, said in a statement. “The President and Congress have made it clear that to emerge from our financial troubles our country needs jobs and innovation. Taxing VCs who are working with fast growing start-up companies so that large corporations can continue to receive tax breaks is ill conceived policy.” The bill now moves to the Senate, where many, many, many VCs hope it will be changed.