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My Bright Idea: Robert E. Litan on the Startup Act 2.0


My Bright Idea: Robert E. Litan on the Startup Act 2.0

Amid Washington’s gridlock over taxes, spending, and what to do about sluggish job growth, a silent bipartisan consensus is emerging over a low-cost way to accelerate the recovery: opening the doors much wider to highly skilled immigrants.

As we now know from various studies and surveys sponsored by my former employer, the Kauffman Foundation, skilled immigrants are more likely than the native-born to start new businesses that hire Americans, especially in high tech. Likewise, studies by Kauffman show that new enterprises have been for the past three decades the dominant driver of job growth and innovation.

These insights are embodied in legislation introduced by a coalition of Democrats and Republicans in the Senate and the House—the Startup Act (SUA) 2.0—whose passage would help rejuvenate America’s sputtering entrepreneurial engine. For more than a decade prior to the Great Recession, the U.S. economy gave birth to about 600,000 new businesses each year. That number fell to about 400,000 in both 2009 and 2010 (the latest year for such data).

SUA 2.0 would help reverse that trend—and help put the U.S. economy back on a path of stronger growth in several ways.

First, the act would greatly expand the number of green cards given annually to foreign graduates of U.S. universities earning science and tech degrees (50,000) and immigrant entrepreneurs (75,000) hiring American workers. Green cards, which are permanent work permits, do a far better job of enabling immigrants to launch new firms than the current temporary H-1B visas for skilled workers (currently 85,000 a year) or student visas, which expire as soon as immigrants earn their degrees.

Second, SUA 2.0 would encourage financing of new businesses primarily through capital-gains tax exemptions on investments in startups held for at least five years, building on regulatory relief for equity financing mandated by the JOBS Act enacted in April. It would preserve various requirements—such as audited financial statements—that protect investors.

Last, the Act would help remove regulatory barriers at all levels of government to the formation and growth of new and established businesses alike.

I believe there are two reasons SUA 2.0 has attracted bipartisan support. One is that the act would change various rules rather than add to the deficit, with the exception of the modest budget impact ($5 billion over 10 years) of its capital-gains tax exemption. The second reason is that the act packages individual provisions that by themselves may arouse controversy—such as regulatory reform and piecemeal immigration reform—under the “startup” label, which has broad bipartisan appeal.

I don’t underestimate how hard this will be. Even though large numbers of members of both parties in Congress agree that increasing the number of highly skilled immigrants is a good idea, implementing it can be derailed by those insisting on “comprehensive” solutions to all immigration issues.

Nonetheless, I have hope that, once the acrimony of the coming election subsides, SUA 2.0 will become the next bipartisan legislative initiative to succeed. With most political attention in 2013 rightly focusing on long-term deficit reduction, SUA 2.0 stands as one of the only ways the federal government can boost job growth—by boosting the formation and growth of new businesses. It is a bipartisan legislative accomplishment that the nation’s economy sorely needs and deserves.
 
Robert E. Litan is the new director of research at Bloomberg Government. He formerly was vice president of research and policy at the Kauffman Foundation and a senior fellow at the Brookings Institution.


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