The Big Story: Startups call for pro-innovation tax reforms
This week, 45 technology startups, investors, and support organizations—representing 19 states across the startup ecosystem—wrote to policymakers urging them to prioritize the needs of the startup ecosystem as they craft tax policy. The letter was sent as key congressional committees begin the process of reforming and reauthorizing major parts of the tax code in 2025. As lawmakers consider changes, they should craft tax policy that lowers overall tax burdens for startups, incentivizes investment and innovation, and enables more people to pursue entrepreneurship.
There are several tax provisions that could be created or reauthorized to support the startup ecosystem. For instance, policymakers should pursue policies that help startups stretch their limited budgets farther, including returning to immediate expensing for R&D costs and raising the tax deduction for startup expenses. To incentivize investment in startups, policymakers should implement a federal angel tax credit and preserve the current capital gains and carried interest tax treatment, which encourage long-term investment and supports diverse founders and emerging fund managers. Expanding the Child Tax Credit and other family-friendly policies will enable more people, particularly working moms, parents, and caregivers, to pursue entrepreneurship. Lowering the overall tax burden for startups through measures like modernizing the treatment of net operating losses and maintaining the 20 percent pass-through deduction ensures that small businesses can reinvest in themselves and continue to scale. Finally, policies that incentivize employees to join early-stage companies, such as expanding the Qualified Small Business stock exclusion, allow startups to attract the talent they need to succeed.
Other voices from the startup ecosystem weighed in with tax policymakers this week. Engine joined a coalition of industry groups to stress that startups and their investors need tax policy that supports them as they drive job creation, economic growth, innovation, and U.S. competitiveness. In separate comments, Andrew Prystai, Co-founder and CEO of Event Vesta Inc, emphasized the role tax incentives associated with Opportunity Zones have played in his company’s success. “Vesta is a certified opportunity zone (OZ) business, and without this designation and the associated incentives for investors, I can confidently say my company would not exist today,” he wrote. As lawmakers continue to consider tax reform, they should prioritize input from the startup ecosystem to ensure they consider the needs of small businesses and startups.
Policy Roundup:
DACA in jeopardy amidst court battle. The Deferred Action for Childhood Arrivals (DACA) program was once again debated in court earlier this month, as the U.S. Court of Appeals for the Fifth Circuit considered the programs’ legality, potentially jeopardizing the ability of thousands of people to live and work in the U.S. Immigrants, among them DACA recipients, are drivers of innovation, contributing incalculable benefits to the startup ecosystem as founders and critical talent in the STEM pipeline. As the DACA program continues its likely path toward the Supreme Court, Congress must act to ensure DACA recipients have a pathway to permanently remain in the U.S.
Trade agency receives feedback about trade barriers. This week, Engine submitted comments as the United States Trade Representative (USTR) compiles the 2025 National Trade Estimate (NTE) Report on foreign trade barriers. Digital trade barriers like digital-specific levies, impediments to cross border data flows, or discriminatory regulatory measures pose significant hurdles for startups, creating unjustifiable costs, impacting their scalability, and limiting their ability to compete abroad. Last fall, USTR retreated from longstanding digital trade priorities and this spring deprioritized digital trade barriers in the 2024 NTE. Policymakers should course correct and fully account for digital trade barriers accounting startups in this year’s report.
Exploring model weights and fine-tuning impact for startups. In two recent blog posts, we continued breaking down the building blocks of artificial intelligence by examining the role of model weights in AI models and the ways that startups use fine-tuning to build off of existing AI models to offer specialized products and services. Transparency around model weights and the ability to fine-tune existing models allow startups to innovate with AI without undertaking the high expense of building and training their own model from scratch.
Critics warn DOJ remedies in search case could harm innovation ecosystem. Last week the Department of Justice laid out a sweeping menu of potential remedies in the agency’s Google Search case. In response, critics—including industry groups, small business voices, academics, and members of Congress—are warning that some of the extreme proposals will cause unintended harm. For example, Rep. Lou Correa (D-Calif.)—the top Democrat on the House Judiciary subcommittee on antitrust—warned that imbalanced remedies would have “consequences on California and American workers, consumers, developers, startups, and the American economy.”
Loan program runs out of funds putting businesses at risk. The Biden Administration announced on Tuesday that the Small Business Administration’s loan program for disaster victims can’t make new loan offers to those trying to rebuild their businesses following recent natural disasters. Without congressional action from lawmakers—who remain out of session until after Election Day—many businesses are left vulnerable. Unlike larger companies with greater financial cushions, many small businesses—including startups—are not well-positioned to weather economic uncertainty.
Startup Roundup:
#StartupsEverywhere: Bentonville, Arkansas. Vance Reavie is no stranger to entrepreneurship. Using his knowledge from previous ventures, he created an AI platform that intelligently automates manual marketing and merchandising workflows and content generation processes for brands and retailers. We sat down with Vance to discuss the startup ecosystem in Arkansas, AI policy and regulation, grant opportunities, and more.
