The tax legislation that will soon arrive on President Trump's desk for signature could have dire consequences for the growing number of startup ecosystems across Middle America.

Why?

To begin with, large corporations are the biggest winners, along with those lucky enough to inherit their fortune. But, the focus on the large corporations and wealthy heirs comes at the expense of education, innovation, and small business.

It's the legislative equivalent of trying to make Justin Bieber a more likable person by giving him a better haircut: The hair is fine, there are more foundational issues that need to be addressed.

When it comes to tax policy, big companies and wealthy individuals are already doing fine.

It's small businesses and startups that need help.

That may be why the tax bill remains unpopular. A recent poll found that a majority of small business owners also oppose the legislation, which is notable because every small business owner I know (and love) is a diehard conservative.

The House version of the tax bill funds some of those large corporate tax cuts by doing away with a variety of existing deductions, as well as counting some currently untaxed benefits as "income." One of those benefits counted as income in the House version of the bill are tuition waivers for graduate students. At many universities, doctoral students are given tuition waivers to help fund their graduate education.

If those tuition waivers become taxable income, graduate students at some schools might see taxes on "income" in excess of $50,000. However, that income will not come in the form of a paycheck--making that tax bill especially painful.

Discouraging students from pursuing graduate education is an incredibly backward and shortsighted idea, not to mention harmful to local entrepreneurial ecosystems.

One example is St. Louis, where Washington University and Saint Louis University are vital to the city's startup scene. Confluence Life Sciences, one of the most successful startups in the region, was co-founded by Washington University professor Gabriele Mbalaviele. While Dr. Mbalaviele received his doctoral education in Paris and wasn't the beneficiary of a Wash U tuition waiver, the next co-founder that leads her startup to a $100 million exit might be doing her research under his supervision. If that's the case, there is a good chance she'll be receiving a tuition waiver.

Taxing tuition waivers won't kill single-handily kill startup scenes.

But having talented graduate students working on important research is especially crucial to the success of startup scenes outside of Silicon Valley. That's true in St. Louis, and I saw the same relationship between academia and startups on a recent visit to Albuquerque, where the entire ecosystem depends on high-level research being done by PhDs and doctoral students.

And discouraging graduate education while preserving deductions for the expenses that come with using a private planes is about more than just the bottom-line impact of those particular policies: It's symbolic of a tax philosophy that protects existing wealth at the expense of the innovation the economy needs. 

No would argue against real reform that encouraged innovation and growth by making a fair and simple tax code.

However, what's being discussed now isn't reform. By the Senator Lindsay Graham's own admission, it's a bill driven by politics, not good policy. And, like most recent "pro-business" legislation, it's built on the idea that the heirs of the Walmart fortune are the engines of a 21st-century economy--instead of the graduate students building the next Google in their university's lab.

Published on: Dec 6, 2017