Let’s Talk About Jobs

Finn Torode
July 19, 2011

The Kauffman Foundation wants to change the conversation about job creation away from government stimulus programs, big business, and even small business in general.

Instead, it contends, Washington should focus on startups, the businesses that actually create most of the economy’s net new jobs.

Today, the Kansas City-based foundation unveiled the Startup Act, model legislation that aims to foster the growth of new businesses by encouraging foreign entrepreneurs to start new businesses in the U.S.; helping new companies get early-stage financing and eventually go public; accelerating the commercialization of new innovations; and reducing regulatory burdens.

Kauffman, which is the nation’s leading organization focusing on entrepreneurship, is precluded by law from lobbying Congress.

So it hasn’t lined up a sponsor for the Startup Act or even put it into legislative language. Instead, it hopes its ideas can stimulate action to reverse a disturbing trend: Startups aren’t employing as many people as they used to, and they are adding employees at a slower pace. That’s a major reason why job creation is so anemic during this economic recovery.

“Simply put, we are stuck,” said Carl Schramm, the foundation’s president and CEO.

“We seem to be out of conventional demand-side bullets,” said Robert Litan, Kauffman’s vice president of research and policy.

The only way to generate significant job growth in the U.S. is to once again rev up the startup engine, Litan said, with a particular focus on high-growth companies.

Foreigners can help, particularly those already here on H-1B visas or those studying science, technology, engineering, and math (STEM) at U.S. universities. Kauffman thinks foreigners should be granted permanent visas if they start companies that employ U.S. workers, and foreign students in STEM fields should be granted green cards to work in the U.S.

Unless you’re a buzzworthy social-networking site, it’s hard for new companies to attract significant capital these days. Kauffman thinks Washington should make it easier for outside investors to back new companies by exempting investments held in new businesses for five years from capital gains taxes. That idea, championed by President Barack Obama, is in effect for investments made in 2011, but that incentive expires in 2012.

Congress also could help startups deal with cash-flow problems in their first few years by eliminating or reducing their tax rates during this period, Kauffman suggested. It also could help more companies access public capital markets by allowing the shareholders of small companies to decide whether to opt out of complying with the Sarbanes-Oxley Act’s costly requirements.

The Startup Act also calls for letting the U.S. Patent and Trademark Office charge higher fees to inventors who want expedited consideration of their patent applications. This idea, which is included in patent reform bills pending in Congress, would help reduce the PTO’s huge backlog of patent applications and speed innovations to market.

Kauffman also thinks academic researchers should be allowed to choose their own licensing agents to commercialize their innovations instead of being forced to use their universities’ technology licensing offices.

Finally, the Startup Act addresses a problem that all businesses, not just startups, complain about: regulatory burdens. It proposes that all major rules be sunset after 10 years, so they can be reviewed and renewed only if their benefits outweigh their costs. Plus, states and localities should be graded on policies that help or hinder the growth of new businesses.

Kauffman’s recommendations are heavily weighted toward startups with high growth potential, not to Main Street businesses that have no intention of ever becoming major players.

“All startups are important, but not everybody is equal,” Litan said.

That’s especially true when it comes to job creation. And jobs, more than anything, are what we need today.

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