Startup America: Economic Boost or Debt Driver
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Startup America: Economic Boost or Debt Driver

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President George H.W. Bush’s speechwriter Peggy Noonan may have coined the phrase a “thousand points of light,” but Gene Sperling’s efforts to boost the economy while in the Clinton White House turned it into an operating philosophy.

Sperling is back, named President Obama’s top economic advisor earlier this month, and the first fruits of his handiwork were on display Monday. A White House desperate to get the economy moving again unveiled a new “Start Up America” program to spur entrepreneurship and create jobs, even as Republicans labeled the program a “gimmick” and small business leaders chided it as too focused on startups rather than existing businesses.

The program, which the president hopes to finance through his budget next month, is headed by Steve Case, who started America Online in the 1990s, and Carl Schramm, head of the Kaufman Foundation. It will include:

  • Permanent relief from all capital gains taxes for new business start-ups (it was a temporary measure included in the December tax relief bill);
  • A $1 billion fund for early-stage businesses needing anywhere from $1 million to $5 million in investment capital to get promising products to market;
  • An increase in the “new markets” tax credit from $3.5 billion to $5 billion a year with a special emphasis on green technologies;
  • Renewal of a $12 million special grant program to help new businesses get started from ideas percolating in federal labs.

The program also includes voluntary private-sector initiatives to set up mentoring programs for budding small business owners. “The story of America is the story of entrepreneurship,” Case said. “This is all about celebrating and accelerating” their efforts.

Although the programs will have a minor impact on the federal budget –hallmarks of Sperling-style initiatives, Republicans on Capitol Hill immediately labeled the proposals dead on arrival. “This ‘Startup America’ program is yet another gimmick that will do little to help entrepreneurs,” said Rep. Sam Graves, R-Mo., who chairs the Small Business Committee. “At the end of the day, this program is about spending more money that our government doesn’t have.”

Brent Skoda, a 25-year-old budding entrepreneur based in Ohio, showed up at the White House to endorse the program. He’s already launched a social networking site called and is building a website that compiles restaurant menu data about where to get healthy fare, which is more accessible because the Affordable Care Act mandates that every chain restaurant provide basic nutritional information for every item on their menus.

The Kaufman Foundation’s Schramm said most new jobs over the past three decades have come from relatively young firms. “Forty percent of GDP this year comes from firms that didn’t exist in 1980,” he said.

While the economy has resumed growing, most private sector forecasters are predicting it will take three or four years of steady economic growth to get unemployment under 6 percent.

The new initiative’s focus on start-ups drew a tepid response from some small business advocates. “They’re throwing us a few bones while avoiding the giant pieces of corporate welfare that are tilted against small business today,” said Michael Shuman, research director for the Business Alliance for Local Living Economies, a Bellingham, Washington-based consortium that includes 22,000 businesses in 80 communities across the U.S.

To deal with the problems of existing small businesses, the White House has pledged to remove unnecessary regulatory burdens, and has jawboned banks to resume lending to the sector. But administration officials are betting there’s more long-term bang for their bucks by backing entrepreneurs.

“New firms in the economy have a way disproportionate share of creating jobs,” said Austan Goolsbee, who chairs the Council of Economic Advisers. “Even large companies are focusing on entrepreneurship. They want to bring in new ideas from small companies.”

The latest Federal Reserve Board survey of the nation’s bankers, released Monday, found that commercial and industrial loan availability for large and middle-market firms was improving gradually, but “few banks reported changing standards on such loans to small firms.” Some 30 percent of banks reported greater demand for loans from large and middle-market firms compared to last October, while only 5 percent of banks reported strengthened demand from small firms, the report said.

Shuman contended that helping existing small businesses expand was a surer way to generate new jobs, with the two biggest issues hamstringing their efforts being massive subsidies given major firms and their lack of access to capital. “The mother lode of finance for small business comes from mainstream banks and capital markets,” he said. “Until they deal with that, they’re just nibbling around the edges.”

He cited the massive advantage given online retailers like that don’t collect state and local sales taxes. “A simple national law could fix that and dramatically improve the competitiveness of local retailers,” Shuman said.

He also noted the massive tax breaks given oil and gas drillers, which far exceed the green technology credits for young solar or wind firms that are the focus of the entrepreneurship initiative. While Sperling said the administration will again recommend repealing the oil depletion allowance and drilling subsidies in its forthcoming budget, those requests have twice been turned down by Congress.

Both Energy Secretary Steven Chu and Commerce Secretary Gary Locke emphasized the need to spur green technologies in their comments. “Countries across the world are rising to the challenge,” Chu, a Nobel prize-winner, said. “We’re in a race to develop clean energy technology.”

Sperling sought to blunt charges that targeted efforts to spur green technologies amount to an administration industrial policy, a charge leveled by critics of 1980s and 1990s programs to boost manufacturing firms’ competitiveness vis-à-vis their German and Japanese rivals. “We’re not trying to pick specific technologies,” Sperling said. “It’s not picking winners and losers to recognize that clean energy is going to play a major role in global and U.S. economic growth in the future.”

Republicans on Capitol Hill from industrial states now tend to support such programs. The manufacturing extension program, for instance, a $125 million-a-year effort that supports 1,400 government-paid extension agents at over 400 universities, community colleges and small business centers across the country, was designed to help small and medium-sized manufacturers modernize their plants and increase exports, which is another goal of the Obama administration.

That program received a one-time 50 percent boost last year, and would be eliminated if Republicans succeeded in reducing discretionary spending to 2008 levels. When questioned about the fate of that program in the upcoming budget, the spokeswoman for Small Business Committee chairman Graves said “the Chairman considers the manufacturing extension program an underutilized yet valuable initiative for boosting small business exports.”

Related Links:
The Administration Starts Its Startup Policy (New York Times)
Facebook, Google, Intel, HP join with Obama to back startups (San Jose Mercury News)
VC’s Applaud ‘Startup America’ But Question Long-Term Impact (Wall Street Journal)