Posted by Jaimie McFarlin - Recently, the Ewing Marion Kauffman Foundation, a Kansas City-based small-business research organization, unveiled its Startup Act proposal. In the four-part plan, the foundation gave policy recommendations to focus the attention of citizens and policymakers on the central role that high-growth startups must play to assure continued U.S. economic strength.
Research by the Kauffman Foundation has documented that companies less than five years old accounted for virtually all new jobs created over the last thirty years. However, the recession has taken a toll on potential high-growth new companies. The unveiling of the Startup Act follows the release of Kauffman data that found while more firms than ever have been created each year since the start of the current recession in 2007, the numbers of new firms with employees continues to drop. McKinsey & Company also recently issued a pretty grim jobs report suggesting that the U.S. economy needs to generate 21 million jobs by 2020 to re-achieve full employment.
The recommended policies in the Startup Act would encourage the building of more scale firms, lower the cost of capital for financing them, accelerate the formation and commercialization of new ideas, and remove barriers to expansion for both new and existing firms.
Specific changes in government policy that the Startup Act proposes include:
- Welcoming immigrants capable of building high-growth companies to the United States by providing "Entrepreneurs’ visas" and green cards for those with degrees in science, technology, engineering and math.
- Providing new firms with better access to early-stage financing, creating capital gains tax exemptions for long-held startup investments, providing tax incentives for startup operating capital, and facilitating access to public markets.
- Accelerating the formation and commercialization of new ideas by creating differential patent fees to reduce the patent backlog and providing licensing freedom for academic innovators.
- Removing barriers to the formation and growth of businesses through the introduction of automatic 10-year sunsets for all major rules, establishing common-sense and cost-effective standards for regulations, and making assessments of state and local startup and business policies.
Some of these proposals have appeared previously in other legislation. For instance, the StartUp Visa Act of 2011 proposed by Sen. John F. Kerry (D-Mass.) would give green cards to immigrants who start companies in the U.S. and hire a certain number of workers. That bill is now in committee as S.565.
The Kauffman plan supports the Obama Administration’s proposal to make permanent the capital gains tax exemption for long-term investments in startups with less than $50 million valuation at the time of the investment. This exemption was put into law by the Small Business Jobs Act of 2010 and is set to expire at the beginning of 2012. The Startup Act also includes a “100 percent exclusion on corporate taxable income earned by qualified small businesses on the first year of taxable profit, followed by a 50 percent exclusion in the subsequent two years.”
According to the Kauffman Foundation’s research, if the economy could consistently generate 30 to 60 new companies with annual revenues eventually scaling to at least $1 billion, the United States would permanently obtain a one percentage point increase in our growth rate.
The Kauffman Foundation's CEO Carl Schramm believes policies supporting entrepreneurship are critical for the American economy. "We hope that by outlining this idea for comprehensive startup legislation, we can stimulate a long-overdue, bipartisan conversation in this country about how to maintain and reinvigorate the entrepreneurial energy that has made our economy the most innovative in the world," he says.
For more on the Startup Act, see the video of the Kauffman Foundation’s presentation.
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