Importing Entrepreneurs

Some sources say that the U.S. has started to run out of entrepreneurs.

The number of startups among American-born individuals is not growing as in the past.

For example, one study found that entrepreneurship among veterans has been declining steadily over the past two decades.

However, entrepreneurial talent is still abundant in foreign-born individuals. Some foreigners come to the U.S. for college and want to remain to launch businesses; others wish to move here to start businesses.

Still, the number of foreign-born entrepreneurs is slipping. A Kauffman Foundation report found that

“the proportion of immigrant-founded companies nationwide has slipped from 25.3% to 24.3% since 2005. The drop is even more pronounced in Silicon Valley, where the percentage of immigrant-founded start-ups declined from 52.4% to 43.9%.”

One of the main problems appears to be the current U.S. visa system. It is not friendly to entrepreneurs. Sure, there’s an H-1B visa for employees. Companies must prove that they control the worker, with the right to fire him or her (something an entrepreneur working for his own company can’t do).

Then there’s the E-2 visa for investors. It requires substantial investments in order to qualify (again, something that many entrepreneurs may not be able to do). But unlike in countries such as Canada and New Zealand, there is no special U.S. visa for entrepreneurs.

Bill to permit visas for entrepreneurs

Startup Act 2.0 is a bill introduced last year that would allow visas to be issued to entrepreneurs. The requirement for the visa: Invest $100,000 and create at least two jobs within the first year of the visa. The visa would last for four years. As long as the entrepreneur employed, on average, five full-time (non-family) employees during this period, he or she would then be eligible to obtain a green card (permanent residency). The bill calls for the issuance of 75,000 entrepreneur visas and eliminate per-country quotas.

The bill had bipartisan support from the likes of Sens. Mark Warner (D-VA) and Marco Rubio (R-FL). It remains to be seen whether the measure will be renewed in the new Congress.

Tax breaks to encourage entrepreneurship

The Startup Act 2.0 would go beyond visa assistance for foreign-born entrepreneurs. It would give every entrepreneur (native born or foreign born) access to the following tax breaks:

  • 100% capital gains tax exclusion for stock in a C corporation held more than five years (a tax break that applied in 2011; currently the exclusion is only 50%). The break would apply only to qualified small businesses, such as tech companies and manufacturers.
  • A special research credit for startups with less than $5 million in annual receipts and less than five years old.
  • A tax credit to encourage employment. It would be up to $250,000 or 20% of W-2 wages, whichever is less.

Final thought

As the new Congress begins to consider the issue of immigration, let’s hope that attention is paid to the need to create a special entry process for entrepreneurs.

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