Startup America Initiative: PR Campaign or Meaningful Action?

On January 31, 2011, President Obama announced the “Startup America” initiative designed to help entrepreneurs start and grow businesses and hire workers. The initiative includes:

  • An SBA commitment for early-stage seed financing of $2 billion over the next five years, to be matched by private sector investments.
  • Some government-led mentorship programs.
  • Tax incentives and relief, including making the 100% exclusion for gain on the sale of certain small business stock permanent (it’s only set to run for stock acquired through the end of 2011).

What’s Good?
The best part of the initiative is recognition of the important role of entrepreneurship to the country.  A Kauffman Foundation Study last summer showed that most job creation comes from startup businesses—new companies add an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually. So, any White House action to spur business creation is welcome.

The second aspect of the program that is encouraging is the emphasis on the private sector to help startups; it doesn’t take any tax dollars to work. This help will come from investments, mentoring, and other assistance from large corporations, including Intel, IBM, HP, and Facebook.

What’s Bad?
The initiative does not eliminate the government’s toxic role in hindering startup and growth. The government needs to look at the following stumbling blocks that it creates:

  • Regulatory burden. While President Obama has issued an executive order directing reduction in the burden, the regulations from Washington just keep coming and coming.
  • Tax burden. Every penny that a small business owner sends to Washington is one less penny to be invested in business growth. Most small business owners pay tax on their share of profits on their personal returns (only C corporations are separate taxpayers). While favorable tax rates have been maintained for another two years, they could rise after 2012. A permanent, low top tax rate would help small businesses. The President’s new initiative has a couple of tax incentives, but none that would help the vast majority of small businesses.
  • Health care premiums. Obamacare was sold with the idea that it would bring down costs; just the opposite has happened so far. What’s needed is action that will reduce premiums. This could include, for example, tort reform and other measures to reduce health care costs.

The Startup America initiative is a step in the right direction. Let’s hope it goes farther than just the end of the block.

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