Ultimately this bill makes working at a startup more attractive when they are already a pretty poor choice, so we'll just have more people making poor choices and putting themselves at financial risk to the benefit of their employer.
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I'm Bob, I write a check for $50K to exercise my stock options. They might be worth something some day, I'm taking that risk and working my ass off to see that they are.
The year I exercise the options, the gov sees that I've made a $1.5M "paper gain", and they want their taxes. Call it $300K.
If Bob doesn't have $350K in the bank, he is stuck - he basically needs to wait until said company goes public to make a zero-cash sale, or forfeit his options when leaving (either by quitting or getting fired).
Not to mention if Bob exercised the stock and payed the $350K - the company could never IPO, or it could and tank. Bob wouldn't see any of that money back.
Bob's upside for working at said risky startup is severally limited.
This is a surprise to most employees, who accepted the risk and assumed they would be able to participate in the upside of the startup (kind of the whole point). These employees find out that, in many cases, they can't actually become shareholders, or they do and lose everything.
In concept, this bill would have Bob write the $50K check for the options, and then only pay taxes once and if actual liquid gains were realized.
How does this only affect the rich or somehow incorrectly incentive people to work for startups?
I'm happy for Bob.
How often do you think gains are ever realized by startup employees given stock options?
But making it costlier to participate only makes the proposition riskier or fiscally unfeisable.
That hurts employees.
Startups are useful in that they trade off innovation for risk - a handful of startups make huge impacts and grow into successful companies.
People know that when they sign up to work for a startup - finding out they can't realize the upside potential is the surprise.
So an alternative way of looking at it is that this bill removes an _accidental_ disincentive for innovation.