Time for Action on Startup Act 2.0
Set aside, if you can, the fear engendered by discussing the future of the federal budget. What can Washington do about issues of more specific and short-term concern to entrepreneurs and potential entrepreneurs?
It can move on Startup Act 2.0, a bipartisan bill that was introduced in both the House and the Senate last spring. Startup 2.0 addresses four crucial issues: talent, ideas, money, and ease of doing business. Here's what the act would do:
1. Deepen the Talent Pool
First, the Startup Act would bring fresh skills and entrepreneurial energy into the country by creating 50,000 green cards for foreign graduates with advanced science and technology degrees from American universities, and another 75,000 green cards for immigrants who establish new businesses here and who meet certain minimum investment and hiring benchmarks.
More than half of the doctorates earned in engineering, computer science, and physics at American universities go to foreign students. We force many of them to leave the country soon after they graduate. At the same time, many prospective company founders are kept out by requirements that they not do business here after their visas expire. Amidst 8 percent unemployment and 15 percent underemployment, we thus find ourselves in the crazy situation of actively turning away entrepreneurs who want to come to the United States and create companies and jobs.
2. Set Ideas Free
Second, the Startup Act would accelerate the commercialization of university research by giving grants to universities that permit their faculty members to directly license their innovations rather than going through their university's technology licensing office. These reforms, which basically replace monopolies with market forces at universities, are long overdue and would help launch more faculty-developed businesses, perhaps many in conjunction with seasoned entrepreneurs.
3. Open the Capital Spigot
Third, the Startup Act would facilitate entrepreneurial financing through two changes in tax law. One change would make permanent the exemption from capital-gains taxation for certain equity investments in small businesses held for at least five years. Kauffman Foundation research has shown that this could lead to an additional $750 million of investment per year in potential high-growth companies. A second change would make a limited research and development tax credit available to start-ups with less than $5 million in sales. These provisions, the only measures in the act that would have any budget impact, would build on the deregulatory provisions in the JOBS Act, enacted with a large bipartisan majority in Congress and signed into law by President Obama in April. Once all the rules for implementing the JOBS Act are written by the SEC, start-ups and young companies should find it easier and less costly to raise capital.
4. Get Wise About Regulation
Finally, the Startup Act would accelerate long-needed regulatory reform. It would embed in statute what has been required by executive order for more than three decades, a requirement that federal regulatory agencies conduct a cost-benefit analysis before implementing new "major" rules, and add a new feature: an assessment of the effect of these proposed rules on company creation. And to promote a virtuous cycle of deregulation at the state level, the Startup Act would require the Commerce Department to assess the impact of state legal environments on entrepreneurship.
Startup Act 2.0 would do more to promote entrepreneurship than anything Congress has done in decades. It's a good sign that all the political initiative for the Startup Act has come from Congress, and in bipartisan fashion. There is a good chance, and good reason, that the bill will be at or near the top of the legislative agenda in the next Congress, almost regardless of the election outcome.