Senate Seeks Declining Startups’ Causes, Solutions

The Senate Committee on Small Business and Entrepreneurship held America Without Entrepreneurs: The Consequences of Dwindling Startup Activity last week. Citing the decades-long decline in new business creation as a motivating factor, senators’ remarks and questions identified regulation and student debt as contributing factors to this decline and to supporting basic research and immigration policy as potential solutions. The majority of the discussion focused on geographic disparities in innovation and how to better share the promise of economic prosperity going forward.

Ranking member Sen. Jeanne Shaheen (D-NH) and Senators Tim Scott (R-SC), Heidi Heitkamp (D-ND) and Chris Coons (D-DE) asked questions about geographic diversity to the hearing’s panelists. Economic Innovation Group co-founder John Lettieri praised legislation by Senators Cory Booker (D-NJ) and Scott that would defer capital gains taxes on monies reinvested in distressed areas. Donna Harris, co-founder of 1776, argued for more support for mentorship, a goal that could be met through Sen. Heitkamp’s bill to provide entrepreneurship grants to EPSCoR-eligible areas. Kauffman Foundation vice president Dane Stangler joined the other panelists in recognizing the challenges posed by poor infrastructure, particularly for rural areas.

Committee Chair Sen. David Vitter (R-LA) made clear that he considers regulation generally, and Dodd-Frank specifically, as largely responsible for businesses’ challenges. The panelists were unwilling to directly name Dodd-Frank as a problem, but all three did cite complex tax and legal requirements as a barrier to new businesses and asked for overall reform, or at least carve-outs for young businesses.

Student debt was mentioned consistently as a barrier to entrepreneurship, with Harris pointing out that most companies are self-financed in their early years and have significant debt therefore limiting growth opportunities.

Sen. Shaheen asked how improvements to immigration policy could help to address America’s declining startup activity. Stangler noted the example of Startup Chile’s program and argued for a policy that would at least provide foreign STEM graduate students to be able to stay in the country.

Sen. Peters, arriving from the Commerce Committee’s markup of the American Innovation and Competitiveness Act, focused his time on basic research. All three panelists praised the importance of basic research and asked for more emphasis on commercialization. Harris called for all federal agencies to invest in these programs and to do so with a consistent set of goals.

The panel’s comments also highlighted a need for better awareness of opportunities among entrepreneurs themselves. In commending the committee’s interest in making a permanent reauthorization of the SBIR program, Harris and Lettieri suggested that lawmakers consider how to make the program more broadly known. Sen. Coons and Stangler later noted a similar challenge for the reauthorized federal R&D tax credit.