The Big Story: Bipartisan tax legislation needed by startups remains in Senate limbo
This week, key Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Finance Committee, told his Republican colleagues he does not want to pass a tax bill this year, dimming prospects for the House-passed tax package that would bolster the startup ecosystem. That bill, the Tax Relief for American Families and Workers Act, would fix R&D tax expensing changes that have led to drastically higher tax bills for startups, and would expand the child tax credit, helping more founders pursue entrepreneurship. The bipartisan package is a crucial step for U.S. startups and for women founders—the Senate should take up and pass the bill to help the startup ecosystem.
The legislation would restore immediate expensing for domestic R&D expenses retroactively to 2021 and forward for taxable years through December 31, 2025. Expenses presently must be amortized over five years, thanks to changes from a 2017 tax law that recently kicked in. Those changes led to higher tax bills that caught many startups by surprise, are burdening their R&D efforts, and in some cases, led to layoffs. The bill also includes relief for millions of working parents, including startup founders, with a limited expansion of the child tax credit, increasing the maximum refundable credit incrementally from $1,600 to $2,000 year-over-year through 2025. This is an important step that will help founders with families and women founders in particular, who often shoulder the responsibilities associated with child care and are increasingly breadwinners.
Given Republican opposition, who are criticizing the tax-lowering bill as welfare expansion, it is unclear whether it will have enough votes on the Senate floor to pass. In addition to Sen. Crapo’s opposition, Senate Minority Whip John Thune (R-S.D.), who is running to replace Sen. Mitch McConnell (R-Ky.) as Republican leader, urged his colleagues to stay together in opposition to the bill. If Senate Majority Leader Chuck Schumer (D-N.Y.) brings the bill up for a vote, it will need support from enough Republicans to overcome the filibuster and pass. Senators should vote for the package to support the U.S. startup ecosystem and broader economy.
Policy Roundup:
Senators highlight how U.S. digital trade abdication will harm U.S. innovators. On Monday, a group of senators sent a letter to President Biden underscoring how the U.S. Trade Representative’s decision to withdraw support for critical, long-established U.S. government positions on digital trade will harm U.S. startups. Those key provisions, preventing data localization, ensuring anti-discrimination, and protecting source code, are essential to keeping barriers low for startups, so they can succeed around the globe. The administration should heed this call—and those from bipartisan groups of lawmakers and startups themselves—to support strong digital trade policy that enables startup success.
Lawsuits targeting Internet platforms allowed to proceed with Section 230 workaround. This week, a New York state judge denied Internet platforms’ motion to dismiss a lawsuit against them, sidestepping Section 230’s liability protection for user speech with product liability law. The cases stem from the horrific, racist mass shooting in Buffalo, where plaintiffs made claims the sites were defective products that provided content that influenced the shooter. Those claims merely reframe the core issue of user-generated content, for which Section 230 both limits platforms liability and enables them to remove problematic content. Some legal scholars are skeptical the opinion will survive an appeal, but if it does, it would in practice nullify Section 230—which is relied upon by thousands of startups—because plaintiffs could merely relabel their claims to get around the law.
Subcommittee criticizes use of Defense Production Act in AI executive order. A House Oversight subcommittee held a hearing this week regarding President Biden’s executive order on artificial intelligence, highlighting the ways it may pose challenges for AI innovation. Several members and witnesses alike underscored the controversial use of the Korean War-era Defense Production Act as a means to regulate the most powerful AI models and the computing power needed to develop them. The sprawling executive order also contains various provisions that stand to benefit innovation and startups, like those encouraging the provision of AI resources and bolstering the AI talent pool through skilled immigration.
House passes funding measure, heads to Senate with short shutdown countdown. Friday morning, the House passed its so-called ‘minibus’ legislation funding several government departments ahead of a potential partial government shutdown. The funding for those departments expires at midnight, and it is unclear whether the Senate will pass it in time given Sen. Rand Paul’s (R-Ky.) opposition to expediting the bill in that chamber through unanimous consent. The agencies that could be impacted by a shutdown include the Small Business Administration, which could be disruptive for startups should the process be dragged out.
What the startup ecosystem needs to ensure Innovation for All. The U.S. startup ecosystem is built on the foundation that entrepreneurship is for anybody with an idea—but in practice, systemic inequities and socio-economic factors hold back many founders and would-be founders. In a new blog post this week, we highlight barriers that underrepresented founders have identified as part of our ongoing Innovation for All project. These barriers that policymakers should rectify include access to capital, networks, talent, child care, and more.
Startup Roundup:
#StartupsEverywhere: Portland, Oregon. Based on past experiences in the workplace, Greg Gasperin created Merify to enable talent managers to equitably identify and reward top performers for valuable work. The platform also serves as a tool for employees to quantify and track their performance data. We spoke with him about the need for trust and accuracy in the workplace, Merify’s extensive use of independent contractors, and a much needed social safety net for startup founders.
