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Creating an Environment for Startups

on June 11, 2010 Source: Policy Dialogue on Entrepreneurship

The job market is terrible.  Everyone knows it, especially those who graduated recently.  According to New York Times Op-ed columnist Thomas L. Friedman the solution will come from startups.  In a recent article, he conjectured that the lack of entrepreneurs participating in government partly explains what he deems an insufficient emphasis on policies that would promote competition and innovation. 

But what sorts of policies would best promote entrepreneurship and innovation?  Friedman posed this question to Curtis Carlson, the chief executive of SRI International, a Silicon Valley-based organization specializing in innovation, and Robert Litan, vice president of research and policy at the Kauffman Foundation. 

Carlson suggested creating a cabinet position exclusively for promoting innovation. Friedman explains that “Secretary Newco” would be focused on pushing through initiatives — including lower corporate taxes for start-ups, reducing costly regulations (like Sarbanes-Oxley reporting for new companies), and expanding tax breaks for research and development to make it cheaper and faster to start new firms.

Litan proposed offering a green card to each foreign student graduating from a U.S. university and reducing the restrictions on the entrepreneurs’ visa (the current one requires $1 million of capital, which few foreign entrepreneurs have).  The new visa would grant temporary residence to foreigners starting a company in the U.S. and permanent residence to those whose companies generate a certain level of jobs and revenues. Litan also advocated a long-term budget deal that would address Social Security and Medicare payouts with the ultimate goal of keeping long-term interest rates low, thereby encouraging private investment. 

Friedman in turn recommended cutting the capital gains tax from 15 percent to 1 percent for startups.  “I want our best minds to be able to make a killing from starting new companies rather than going to Wall Street and making a killing by betting against existing companies,” he said.  This statement touches upon the lack of incentives for innovation, suggesting that if the nation wants results, it must remove roadblocks and offer incentives. 

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