6 Ways the Government–Yes, the Government–Could Improve Entrepreneurship in 2020
January 13, 2020
U.S. politicians are fond of talking about “opportunity” and their desire to support launching and scaling businesses. Unfortunately, sometimes talking is as far as they ever get–a common cause of frustration among entrepreneurs eager to see startup-friendly legislation.
Capitol Hill lawmakers started slowly in 2019 with yet another reintroduction of the Startup Act, doomed by its provision–amid a fractious immigration debate–for a visa for international entrepreneurs. But in the second half of the year there has been a flurry of bills relevant to company founders, including two that make it easier to leave your job to start a company. None has become law, and their progress in an election year is uncertain. In aggregate, however, they suggest that Congress has at last begun to distinguish between mom-and-pops and potential growth companies and to focus, increasingly, on the latter.
The most significant development, arguably, is the creation of entrepreneurship caucuses in the Senate (March) and the House (October). Caucuses are “sort of like clubs where members who are interested in a particular topic come together,” says John Dearie, founder and president of the Center for American Entrepreneurship, a policy and advocacy organization that has been involved in much of this year’s congressional activity. Whereas committees are highly jurisdictional and turf-conscious, caucuses operate broadly across multi-issue subjects like entrepreneurship, with members considering everything from access to capital to skilled workforce development to tech transfer. The result is a more cohesive, coherent approach to policymaking.
“It becomes a natural constituency for driving legislation,” Dearie says. “If a member of the caucus introduces a bill having to do with entrepreneurship, he or she can immediately turn to members on both sides of the aisle for potential co-sponsors.”
The Senate caucus has influenced several of the acts described below. What follows are descriptions of the most significant bills for entrepreneurs introduced in 2019.
1. An investigation into startup decline
Washington is waking up to two facts. Entrepreneurship is not the same as small business. And entrepreneurship is in trouble. The Enhancing Entrepreneurship for the 21st Century Act would direct the secretary of Commerce to study the four-decade decline in company formation: its causes, economic implications, and potential solutions. Backed by the full data and analytic capacities of the federal government, this study would dwarf in scale previous research from academics and think tanks. The results should drive entrepreneurship policymaking for years to come.
Status: Introduced in the Senate in September and the House in October.
2. A kibosh on noncompetes
The suppressive deployment of noncompetes has reached absurd proportions. Employers have tried to impede florists, hairdressers, and Jimmy John’s sandwich makers, among others, from plying their trades. Entrepreneurs–who frequently start businesses related to their jobs–are often among the handcuffed. The Workforce Mobility Act would limit the enforcement of these agreements to situations like the sale of a business or dissolution of a partnership. A handful of states already ban noncompetes, including Oklahoma, North Dakota, and California, where the free flow of talent has made Silicon Valley vibrant.
Status: Introduced in the Senate in October.
3. More aid for R&D
Startups, by their nature, invest aggressively in product and technology development. An R&D tax credit helps–but not so much when it is applied against income tax, which many pre-revenue companies don’t pay. The 2015 Path Act addressed that problem by letting startups apply the credit to payroll tax liability instead. Now the R&D Tax Credit Expansion Act would double the credit cap from $250,000 to $500,000, expand it to cover all payroll taxes paid by startups, and increase the eligibility cap to $10 million in sales.
Status: Introduced in the Senate in July.
4. Retirement revisited
Few founders can afford retirement plans for startup employees. The Secure Act allows new and small businesses to band together in associations to provide 401(k)-like products to their workforces, which should make recruiting talent easier. Aspiring entrepreneurs also can roll their own retirement accounts from previous employers into the new plans, making it easier to leave to start a business.
Status: Passed the House in May; introduced in the Senate in June, where it is being held up by three senators.
5. A more growth-friendly SBA
It’s been almost 20 years and a technological lifetime since Congress last took a whack at modernizing the Small Business Administration. The SBA Reauthorization and Improvement Act would intensify the focus on innovation and entrepreneurship. Among other things it would increase R&D resources available through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs; create new loans of up to $50 million to plug the financing gap experienced by fast-growth advanced manufacturers as they scale; and improve export programs used by those manufacturers.
Status: A preliminary version was shared in the Senate small business and entrepreneurship committee in July to be amended before formal introduction.
6. Help with hiring
Bringing on a first employee is a big moment both for individual founders and for the economy as a whole. To encourage that, the Progress Act would create a credit equal to 25 percent of that first hire’s wages–up to $10,000 a year–against the company’s payroll liability. Investors in qualified businesses can also claim a credit of up to 50 percent of a qualified debt or equity investment, up to $10,000 in a year. Although any business owner can take advantage, the act is intended to help women entrepreneurs in particular. Their companies are often smaller and in service industries, so they qualify for fewer tax breaks.
Status: Introduced in the Senate and in the House in October.