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Tax Incentive Plans Quietly Taking Shape for Startups

Tom Williams/CQ Roll Call File Photo
Baucus, left, and Camp are sure to include incentives for startup businesses in their tax rewrites, but the two face a deep partisan split over whether a big bill should help pay for a debt deal or meet the GOP demand of being revenue neutral.

The Ewing Marion Kauffman Foundation, a nonprofit research group, estimates that about 514,000 new businesses a month were created nationally in 2012, compared to 543,000 a month in 2011. Dane Stangler, a spokesman for the group, says such fluctuations are driven by the economy’s usual ebb and flow. A slow rebound has opened up more job options for unemployed workers, meaning that fewer choose to be self-employed than during a recession.

Job growth remains relatively slow in the broader economy. But Haltiwanger says that although new businesses make up 3 percent of total employment, they account for nearly a fifth of newly created jobs.

Stanger and other experts say incentives would have the most impact on more stable startups.

With first-time employers in mind, President Barack Obama has backed a 2-year-old Startup America campaign that encourages joint efforts by the SBA, private donors, community colleges and universities to support entrepreneurs.

On Capitol Hill, lawmakers have been focused on trying to help new ventures that are hamstrung by tight credit restrictions on bank loans. Concerns about the limited cash pool spawned measures in the 2012 law to increase access to capital markets. That allowed emerging growth companies with less than $1 billion in revenue, such as social media giant Twitter Inc., to make confidential filings with the Securities and Exchange Commission before public registrations of initial public offerings. It also allowed small businesses to sell $1 million a year of securities — with purchases capped at $2,000 for an ordinary investor — through crowd-funding online portals.

A study by Ernst & Young in April found the 2012 law had not sparked a jump in the IPO market. But it said EGCs relied heavily on confidential filings and were waiting for the implementation of other provisions.

Looking to do more, lawmakers are pushing for new measures that encourage university research, cut patent fees and increase visas for foreign investors and some foreign graduate students among ways of helping startups.

Both parties agree on the need for tax incentives, and Coons and his allies say such measures are in position to move, with or without an overhaul. He has backed a payroll tax credit for research-and-development costs. And Sen. Jerry Moran, R-Kan, has promoted a bill that includes an extension of the full exclusion for capital gains on qualified small-business stock held for more than five years.

For the most part, Camp and Baucus have argued for curbing tax breaks to pay for lower rates. But both have left the door open to sweeteners for small businesses.

As part of his draft framework, Camp proposed to return to the pre-stimulus cap of $250,000 on small-business expensing, and make the provision permanent. He offered a unified, expanded version of the deduction for startup expenses. The draft would streamline rules for S corporations, partnerships and limited liability companies with the aim of helping them cut costs and paperwork.

“We want to make sure they have the resources, the incentives, so that people feel confident to go out and take that risk, and begin a small business, or grow their small business, because that means jobs,” Camp said.

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