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STARTUP AMERICA LEGISLATIVE AGENDA
Mr. COONS. Last week, President Obama unveiled his Startup America Legislative Agenda.
It marked the 1-year anniversary of his Startup America initiative, an ambitious, impressive, national energetic effort led by, among others, legendary innovator and entrepreneur Steve Case, the founder of AOL. It was a strategy that focused on how the Federal Government can best help young companies and, in particular, entrepreneurs all over this country get into the game of starting and growing businesses. It is smart and it is important.
Entrepreneurs are driving our economic recovery and will drive our economic recovery into the future. They are taking the risk personally to turn their ideas into startup companies in fields from biotech and clean energy to manufacturing. Among these innovators could be the next American giant, a General Electric or DuPont. But in order for these startup companies to grow, we have to support them in their critical early stages. Today, I take that as our challenge.
Whenever I visit a factory in Delaware or meet with the young owner of a company that he or she has just started, I ask the same question: How can we best help you to grow?
Small business, it is often said, is the engine of job creation in this country. In the 1990s and the early 2000s, small firms created more than 65 percent of the new jobs in this country. But I want us to particularly focus on those small businesses that have enormous potential, so-called gazelle startups, those that grow not from 5 to 10 or 5 to 20 employees but from 5 to 50 to 500 to 5,000, whether it is Facebook or other startups that have gone from literally bench top or dorm room to being employers of thousands or tens of thousands.
Our economy has grown dramatically because of these rapidly growing innovative startups. Typically, they are startups that focus on a disruptive technology or product, something that fundamentally changes a whole sector of our marketplace, and they have the most promising potential for job creation.
Between 1980 and 2005, most of the net new jobs in America were created by firms that were 5 years old or less. That is about 40 million jobs over those 25 years.
This summer, I hosted in Delaware a series of roundtables with business owners. The focus of these conversations was on how we can help their businesses to grow and grow quickly. A lot of these businesses were young and innovative companies. They have a great idea and a good start on their research. But I often found, particularly in this economy, they are struggling to capitalize on their innovations.
Innovation is the spark that drives and sustains entrepreneurship, particularly entrepreneurship in disruptive technologies. But it is research and development that drives that innovation, and government only has so many tools we can use to help promote innovation. Today, I wish to talk about a piece of the Tax Code that is one of the most powerful tools in our toolbox.
Thirty years ago, Congress created the Research and Development Tax Credit, the R&D Tax Credit, to help incentivize companies to invest in innovation, to invest in the people who are doing the research and the development that drives innovation. In fact, 70 percent of R&D-qualified expenses today are for wages. In many ways, it is an innovative jobs credit. It has helped tens of thousands of companies and has been extremely successful at getting companies to invest in innovation. But it has one key weakness: It expires. It expires all too often. It has, in fact, expired 8 times and been extended 13 times and it has most recently expired in December of last year.
The first bill I introduced as a Senator last April was entitled the ``Job Creation Through Innovation Act.'' It did two things. First, and most important, it made the R&D tax credit permanent--important, in my view, to sustain and extend this successful program. But there is another issue we still need to address to make the tax credit relevant to these early stage, innovative, high-growth companies. Right now, the tax benefits of the R&D tax credit are available only to more established companies that are already turning a profit. We have to have a tax liability on their profits for that credit to be of any value to them. That is a roadblock in the way of success for startups and small businesses in Delaware and around the country and a place where I think we can and should come together across the aisle to address this gap in the R&D tax credit program because, in my view, it is the small early startups that most need a cash infusion to support their confidence, their stability, and their innovation. We can, and should, take this tax credit and retool it in a way that makes it more relevant and more effective. If entrepreneurs are the ones taking risks in this economy and creating jobs, they should be the ones we support in this tough economy through our Tax Code. As I said before, history shows it is those young companies that are creating the most jobs the most quickly and that have the best return on tax expenditures.
Here is what I have been working on. As I have met with innovative young businesses in Delaware, one of the ideas that has come to me more than once is to change the R&D tax credit so it is accessible not just by being permanent to big and profitable companies but by being tradable so smaller or startup companies that have no tax liability can take advantage of it.
How would that work? It allows startups to sell their tax credit to a larger company, giving them a much needed infusion of cash. Let me give an example.
Elcriton is a small but high promise, high potential Delaware company. It has patented strains of bacteria that are designed to consume duckweed--also called pond scum--and produce biobutanol, a promising drop-in alternative fuel. It has tremendous potential. Elcriton today is run by two Ph.D.s who have put together all the money they can raise, from family and friends and angel investors and early funds into research and development. But for them to grow, and grow quickly, they need access to more capital to fund more innovation.
Evozym Biologics also is a 2-year-old Delaware company trying to bring to market cutting-edge innovations in computing and in the development of proteins from the University of Delaware and the Desert Research Institute. They are doing incredible things there.
Both these companies need more funding to invest in R&D and to capitalize on their potential to grow rapidly and grow high-quality jobs. If they were already bigger, well-established, successful companies, they might well qualify for the existing R&D tax credit. But because they are so small and just getting started, our current tax credit doesn't help them at all.
Fortunately, Delaware is also home to a few great well-established companies. Since those companies turn a profit and pay taxes, they could actually utilize a tax credit. In this case, Elcriton or Evozym would sell their innovation credit to one of the larger established companies. The bigger company gets the tax credit. The newer company gets the infusion of cash it needs to sustain its innovation. It would be a win-win.
This is just one idea of a number that I have introduced, that I have proposed, and that I have discussed with Senator Baucus and others on Finance. I hope that in discussing it today, some of my colleagues on both sides of the aisle and leaders in the business and innovation communities will work with me to further refine it, focus it, and make it part of our greater conversation about tax reform and the economic recovery.
We can and should put our heads together to find commonsense solutions to the problems, challenges, and opportunities of innovation and competitiveness. We have to give American business the support they need to compete in an increasingly competitive global economy because, in my view, we are falling behind in the race for innovation.
In the 1980s, the United States was routinely ranked as having the best R&D tax incentives and overall support for innovation in the world, but today some studies have us ranked 17th in the world in supporting and sustaining innovation. I refuse to let American companies, American inventors, and American workers fall behind. With the right resources, American ingenuity will continue to outcompete any country on Earth every time. I know it is possible. I have seen it week in and week out as I have visited small and medium startup companies in Delaware.
Just a few weeks ago in Bridgeville, DE, a town many from here have traveled as they have gone to the Delaware beaches, I stopped to visit a small company, Miller Metal, that is proving day in and day out that with investment, with innovation, with continuous improvement, they can go head to head with Chinese metal fabricators and win: manufactured in Delaware, competitive in the global marketplace.
Although we need a full overhaul of our corporate tax structure, making this one small tweak to the R&D tax credit to make it accessible to early stage innovative companies will, in my view, give us a running start into the headwinds of the global economy, and I think we have no more time to waste. It is small businesses and innovative strategies that will create the jobs we need to put our neighbors back to work and turn this economy around more quickly. Let's work together, let's help them, and let's make progress on this most important proposal to change the R&D tax credit, make it permanent, and make it accessible for early stage companies.
I am eager to hear what people think about this idea, and I hope they will connect with me and my office and let me know how to improve on it, how to execute on it, and how to deliver this as a new tool in the toolkit of American innovation.
I suggest the absence of a quorum.
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