The Big Story: Affirmative Action cases will impact innovation ecosystem
This week, the U.S. Supreme Court heard two cases that could upend race-conscious admissions policies used by many universities and alter the pipeline for STEM talent in the innovation ecosystem. Eliminating the ability to consider race in college admissions would have an outsized impact on on-campus diversity, the racial and ethnic diversity of many employers hiring college-educated talent throughout the country, and the makeup of the startup ecosystem and the breadth of innovation it produces.
The cases in front of the court—Students for Fair Admissions v. President and Fellows of Harvard and Students for Fair Admissions v. University of North Carolina—deal with race-conscious admissions policies that help to level the playing field for marginalized and historically disadvantaged communities and can have a gross impact on access, opportunity, and college enrollment for underrepresented students. When the practice ended in California, for example, some top universities saw enrollment for students belonging to underrepresented groups fall more than 50 percent, and earnings dropped as well for Black and Hispanic graduates. The Supreme Court’s impending decision—likely to come next summer—could overhaul years of case law allowing colleges and universities to consider race in admissions, leading to similar results. In a brief signed by Engine and over 80 members of the business community, signatories warned that losing affirmative action could risk “a pipeline of highly qualified future workers and business leaders” and without diverse teams, creativity and innovation could diminish.
For the innovation ecosystem, diversity is imperative. As we’ve highlighted in the past, diverse teams generally produce better outcomes, including more and better innovation, increased revenues, and solutions and services targeting wider audiences. And racial and ethnic diversity is crucial for job creation as well, as studies show that one million employer businesses and 9.5 million new jobs could be created if underrepresented founders had equitable access to start and scale their businesses. Making college education more accessible leads to a more diverse talent pipeline, which creates a more equitable startup and innovation ecosystem.
Policy Roundup:
Engine submits comments on barriers to trade impacting startups. Last week, Engine submitted comments to the Office of the United States Trade Representative as it prepares the National Trade Estimate Report on Foreign Trade Barriers for 2023. As we highlight in our comments, lowering barriers to trade unlocks markets for U.S. startups to expand, compete, and be successful and is an integral part of promoting domestic technology entrepreneurship.
Coalition pushes for tax law change impacting gig workers, freelancers. A coalition of e-commerce companies is asking Congress to lift the threshold requiring tax reporting for certain online sales and services before the end of the year. The threshold was lowered from $20,000 to $600 to raise tax revenue for the American Rescue Plan. Lowering the threshold was designed to capture income earned in the gig economy and by freelancers, who are broadly facing increased attention from policymakers. Companies must provide tax forms to the IRS and any user who exceeds the threshold for the 2022 filing year. Many lawmakers are arguing that the threshold was reduced too far and would ensnare too many people, increasing the likelihood of a potential fix in a year-end legislative package.
Colombian tax legislation could create trade barrier. Last week, a coalition from across the technology industry sent a letter to Treasury Secretary Yellen, Commerce Secretary Raimondo, and U.S. Trade Representative Tai regarding Colombia’s new tax bill which would affect American technology companies—including startups—in the country, if advanced. The bill would impose tax liabilities on companies with a significant economic presence in Colombia—which would be established through nearly any service “provided through a digital market” to Colombian users. In addition to this problematic method of establishing tax nexus, U.S. companies would then be subject to taxes on gross revenues—in contravention of international tax norms. Engine has repeatedly argued that the taxation on digital services serves as a barrier to innovation, and for those countries with low-to-no thresholds, startups themselves could be directly impacted by these taxes—and kept out of those markets entirely.
Upcoming roundtable on independent contractors. Next Wednesday, November 9 from 3-5 p.m. ET, the Small Business Administration’s (SBA) Office of Advocacy is hosting a roundtable for startups and small businesses to discuss the Department of Labor’s proposed rule to determine whether a worker can be classified as an independent contractor under the Fair Labor Standards Act. For startups, independent contractors play a vital role and fill in talent gaps, often for project-by-project work. What policymakers ultimately decide will significantly impact the innovation ecosystem and the talent market available to startups in the U.S.
Startup Roundup:
#StartupsEverywhere: Los Angeles, California. People Clerk’s innovative legal technology platform works to create a more accessible legal system and helps users of different social, economic, and cultural backgrounds navigate the bureaucracy of small claims courts. Co-Founder Camila Lopez spoke with us about why she decided to start People Clerk, the challenges that arise when complying with a state patchwork of privacy laws, and the unique challenges founders face when building a legal tech company.
