if you qualify for small business stock + 5 years discount currently, you could pay capital gains (15%) on 50% of the stock, and AMT (28%) on the remaining 50%, giving an average tax rate of 21.5%, worse than existing capital gains, which clearly doesn't make sense, so no one does it.

under the new proposed system, if qualified, there would be NO capital gains on 100% of the stock, AND it would not be subject to AMT, meaning that the gain is completely tax free (minus state tax, of course).

the only restriction would be that you have to acquire stock in the company when it is worth less than $40M (easy) and hold it for 5 years (harder).

Not really.

Most of us aren't accredited investors, so we can't buy stock in small companies without starting them, working for them, or being related to the founders.

Reduced taxation on small biz stock will make successful small biz more profitable, so it's a big deal for angels, VCs, and their limited partners, but because it doesn't increase the size of the investor pool, it just helps their returns.

This may have a modest effect on the number of funded small biz, but it won't help most of us.

You'd think that the super-genius' in the Obama administration would know about the accredited investor stuff.

What is the reasoning behind preventing people from investing into companies? Is it just to keep people from being swindled? It seems off to me.

That's the stated reason. Your guess is as good as mine as to whether it's a real reason or even the only reason.