Startup Act 2.0: Is Immigration Reform Vital in Moving Innovation Forward?

    June 17, 2012

With the economy weighing heavy on everyone’s mind this election season, legislators are hoping it will help them pass a new initiative. The bill is called Startup Act 2.0 and is designed to spark new businesses and jobs.

What does the U.S. need to spur the economy? Is legislation geared toward startups the answer? We’d love to hear your take in the comments.

Although President Obama already signed the JOBS Act into law this year, Startup Act 2.0 is said to be an extension of it. The Jumpstart Our Business Startups Act focused on simplifying the funding and regulation processes that small businesses and startups must go through and, specifically, introduced the concept of crowdfunding.

Startup Act 2.0, however, builds upon these principles but also opens the door on immigration reform. As WebProNews reported when the bill was first introduced to the Senate, it would bring about the following provisions:

  • Creates a new STEM visa so that U.S.-educated foreign students, who graduate with a master’s or Ph.D. in science, technology, engineering or mathematics, can receive a green card and stay in this country where their talent and ideas can fuel growth and create American jobs. It also creates an Entrepreneur’s Visa for legal immigrants so they can remain in the United States, launch businesses and create jobs, and eliminates the per-country caps for employment-based immigrant visas, which hinders U.S. employers from recruiting the top-tier talent they need to grow.
  • Makes permanent the exemption of capital gains taxes on the sale of startup stock held for at least five years, so investors can provide financial stability at a critical juncture of firm growth. It also would create a targeted research and development tax credit for young startups less than five years old and with less than $5 million in annual receipts. This R&D credit is designed to allow startups to offset employee taxes, freeing up resources to help these young companies expand and create jobs.
  • Uses existing federal R&D funding to better support university initiatives designed to bring cutting-edge R&D to the marketplace more quickly, where it can propel economic growth.
  • Requires government agencies to conduct a cost-benefit analysis of proposed “major rules” with an economic impact of $100 million or more. This new requirement will help determine the potential impact of proposed regulations on the formation and growth of new businesses.
  • And Startup Act 2.0 directs the U.S. Department of Commerce to assess state and local policies that aid in the development of new businesses. Through the publication of reports highlighting these “best practices” from across the country, policymakers will be better equipped to encourage entrepreneurship by adopting the most effective and successful policies.

The immigration aspect of the bill is certainly significant, especially since the subject has been so controversial in Washington. Startup Act 2.0 would bring two new types of visas to the U.S., one of which would give an additional 75,000 student visas in STEM (science, technology, engineering, and mathematics) fields the opportunity to go above the 50,000 H-1B cap. The second new visa category is for entrepreneurs that start businesses in the U.S. and obtain $100,000 in funding.

“In terms of the human capital equation and addressing immigration, it’s really a pressing priority for the industry and something that needs to be addressed,” Kevin Richards, the Senior Vice President of Federal Government Affairs at TechAmerica, tells us.

TechAmerica is a strong supporter of Startup Act 2.0 and the immigration reform that it would bring because, according to Richards, this “human capital” has been the U.S.’s “greatest advantage” over the rest of the world.

“The great success of this country has been its ability to attract talent from around the world and to have free innovative ideas to invest in a capital system,” he said.

Richards is fearful though, since new research indicates that the U.S. is falling behind in the global race for talent. The Partnership for a New American Economy found that, by 2018, there could be a shortfall of as many as 230,000 qualified science, technology, engineering, and mathematics workers.

Data from Partnership for a New American Economy

AOL Co-founder Steve Case, who is also one of the members of President Obama’s Council of Jobs and Competitiveness and an advocate of Startup Act 2.0, made an interesting comparison about the current immigration/education system in the U.S. in a post he wrote on TechCrunch:

Imagine if we trained men and women at our Air Force and Naval Academies, equipped them with the tools they need to lead and succeed in battle, and then kicked them out of our country to join other militaries? In effect, that is what we are doing when we train the world’s most talented immigrants to innovate and start businesses at our great universities, then send them off to start companies in China, India, and South Korea.

“We really have now more of a fortress mentality approach where we have the best and brightest universities in the world, but we send these students back home to our foreign competitors,” added Richards.

“If we don’t do something now,” he continued, “we risk our future and our future competitiveness in innovation.”

At this point, nearly half of the venture-backed companies in the U.S. have had at least one immigrant founder. What’s more, some of America’s biggest technology brands, including Google, Apple, and IBM, were also founded by either an immigrant or a child of an immigrant.

But, according to Richards, these trends could change if the U.S. doesn’t lift its current caps. For instance, the H-1B cap is typically filled in one day. As a result, he believes that, if the U.S. fails to act now, technology giants will begin to appear overseas.

“The pace of innovation is something we really have to be concerned about,” said Richards. “We’re hopeful that this bill will unleash new innovation and creativity in our sector.”

Still, there are some who believe that Startup Act 2.0 doesn’t do enough to encourage entrepreneurs. Richards, however, points out that it is a “good first step” in the right direction.

While an election year is not normally a good time to get a bill passed, the economic elements this bill proposes could help it.

“The economy is gonna be the top issue on the minds of voters in the 2012 election,” explained Richards, “and if they [legislators] want to have a record to run on and to demonstrate what they’re doing here in Washington, this would be a great first step.”

The bill has been introduced in both the Senate and the House, and the hearings over it are expected to begin soon.

Is immigration reform necessary to reviving the American economy, and is this bill an effective strategy for it? Why or why not? Let us know what you think.