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ICYMI: Support Entrepreneurial Recovery, Enhance Small Business R&D

Thanks to Stranger Things, the number one summer song on Spotify in the United States until last week was Kate Bush’s “Running Up That Hill.” It’s an apt if unlikely hit—the song was originally released in 1985. Yet it undoubtedly captures the general sentiment among entrepreneurs and small business owners. According to nearly every recent survey, small and young companies still feel like they’re “running up that hill” of economic challenge.

Inflation in particular has hit the youngest and smallest businesses quite hard. According to the latest survey from Goldman Sachs 10,000 Small Businesses Voices, one-third of respondents cited inflation as their most significant problem. That was up from just 22% in April. In the most recent Small Business Index from MetLife and the U.S. Chamber of Commerce, inflation was cited as the top issue by 44% of small business respondents. And in a survey of new entrepreneurs by Gusto, inflation even beat out “time and attention for business”—a perennial challenge for business owners—as the top issue.

Put inflation together with lingering supply chain difficulties, hiring challenges, and persistent financing gaps, and it’s no wonder that small and young companies feel like they’re “running up that hill” and getting nowhere.

Gusto and the Bipartisan Policy Center recently hosted a public discussion to explore these challenges and address an apparent juxtaposition. While entrepreneurs and small businesses continue to wrestle with inflation and financing, new business creation has surged at record levels the last two years. More entrepreneurs in the Gusto survey have been starting out of opportunity rather than necessity, an indisputably positive sign.

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We spoke to Sen. Maggie Hassan (D-NH), Rep. Ron Estes (R-KS), and a panel of experts and small business supporters to understand what’s going on—and what policymakers might do to better support them, including through enhancement of the R&D tax credit. Panel participants were:

  • Alyssa Harvey Dawson, Chief Legal Officer, Gusto
  • Corinne Hodges, CEO, Association of Women’s Business Center (AWBC)
  • Joshua Lee, founder, Ardius
  • Ryan Metcalf, Head of US Public Policy & Global Social Impact, Funding Circle

Here are some highlights and takeaways from that discussion.

Why We Need to Continue to Support Entrepreneurs and Small Businesses

In a time when struggle is real, economic pressures are real, this is when new ideas are really emerging. So, is the entrepreneurial highway open for business? Or is it instead blocked and barricaded and is it full of potholes?
Corinne Hodges, AWBC
Small businesses have been experiencing a rollercoaster of emotions.
Ryan Metcalf, Funding Circle
Bottom line is, we owe it to these businesses to ensure that policy is designed to support them.
Alyssa Harvey Dawson, Chief Legal Officer, Gusto
For any new business owner or small business, the economy has changed. It’s not the same economy that we just were in even three months ago.
Joshua Lee, Ardius

Enhancing the R&D Tax Credit

A particular point of emphasis for participants was the research and development (R&D) tax credit, intended to support innovative activities at small and young companies. The recently crafted Inflation Reduction Act in the Senate includes an increase in the refundable portion of the credit, something Sen. Hassan has championed.

Tax credits traditionally were used to only offset tax liabilities. … There was a slight problem with new companies and startups—traditionally they were not profitable, they didn’t have any tax liability. These tax credits were just sitting here. … Huge shift back in the PATH Act of 2014: credits started getting utilized against payroll taxes. That was huge. You could have all these startup companies and small businesses that were pre-revenue or even unprofitable actually now be able to access and utilize these credits against the one thing they did have, payroll and payroll taxes.
Joshua Lee, Ardius
a vital component in supporting innovative businesses in New Hampshire, and we need to expand it at the federal level.
Sen. Maggie Hassan (D-NH)
R&D tax credits can form an important piece of the financing puzzle for entrepreneurs, at all sizes and levels.
Alyssa Harvey Dawson, Gusto
We’re competing against other countries that are already changing their tax codes so that they can attract businesses to set up shop in their countries. … We need to make sure that our federal tax code is incentivized to help promote economic growth.”
Rep. Ron Estes (R-KS)

ICYMI: Check out BPC’s policy recommendations for supporting small businesses and entrepreneurs.

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