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Americans Say, Free the Job Creators

Carl J. Schramm and Douglas Schoen

The Obama Administration has been dealt a terrible hand - perhaps the worst to any incoming team since 1933. A certain measure of appreciation for the difficulties they face is warranted.

However, even some of the new President's most committed supporters - including business giants like Andy Grove and Warren Buffet - believe that he is trying to do too much, and thereby jeopardizing his chance of restarting this economy and making it stronger.

The American people agree. They overwhelmingly see private sector job creation and entrepreneurial activity as the way to recovery - and believe it is the missing ingredient from current plans to revive the economy.

A recent survey conducted by co-author Schoen for the Kauffman Foundation showed that Americans, by a 63 to 23 percent margin, prefer polices that incentivize individuals to start their own businesses over direct government efforts to create new jobs. An even higher percentage of respondents - 79 percent - say that entrepreneurs are more important job creators than big business, scientists and government (dead last).

Barely one-fifth of Americans believe the stimulus package will do much to help entrepreneurs, and a scant 3 percent believe it will encourage innovation - something that 78 percent believe is important to the health of the economy.

There is wisdom in crowds, and that is surely true of the American people on this subject. Since 1980, all net job growth in this country has been driven by firms less than five years old - that is, by the brash young start-ups that become the behemoths of tomorrow. Many of the most successful among these companies - stalwarts such as Microsoft, Genentech and CNN - were founded during recessions or bear markets. Encouraging the formation of companies that could grow into today's innovators and tomorrow's giants should be the focus of U.S. economic policy.

Unfortunately, all the major initiatives either passed or in the works - from the bank bailouts, to the stimulus, to the new budget, to looming reforms of the health care and immigration system - either ignore entrepreneurs or make things harder on them.

Hikes in marginal tax rates will discourage investment in new ventures. Those who dismiss concerns about "tax hikes on the rich" who can presumably afford to pay more should understand that among those "rich" people are well-to-do older relatives and friends of aspiring entrepreneurs, the first source of investment for most new businesses that would otherwise have trouble securing capital - especially in the midst of a credit crunch.

The proposed cap and trade system amounts to a stealth tax on energy - something consumed by every sector of society, and one of the key cost factors for any business.

Vast new spending and huge new entitlement programs crowd out private investment, burden business, and so overload the treasury as to make future tax increases inevitable.

Bailouts are delaying the inevitable - either an orderly bankruptcy for companies that could survive a restructuring and return to profitability, or a lamented but necessary closing of the doors. It's long past time to stop throwing good money after bad.

There have been a few bright spots in President Obama's economic agenda. He recently announced a $15 billion initiative to increase lending to small businesses. A move in the Senate to kill the successful Small Business Innovation and Research (SBIR) program - which directs a small portion of federal research money to start-up businesses for projects to commercialize scientific and technological breakthroughs - was turned back. SBIR not only deserves to survive, it should be strengthened and expanded.

But this is only the tip of the iceberg for a recovery package that truly focuses on the needs of entrepreneurs. Seventy-two percent of respondents to our survey said the government should do more to encourage individuals to start businesses.

Some things that government could do include encouraging risk taking through tax policy. Exempt entrepreneurs from payroll taxes. More respondents favored this idea than any other fix; it out-polled the stimulus package by nearly two-to-one.

Second, let's exempt entrepreneurial businesses from capital gains taxes. As a candidate, Mr. Obama promised to do exactly this. But no trace of that idea is to be found in any of the administration's actual proposals thus far. Let's hope it is just on hold and not purposefully forgotten.

Third, we should focus on the needs of new businesses for affordable health coverage by telling insurance companies they can compete across state lines with a bare-bones "entrepreneurs' policy."

Fourth, government could encourage the world's brightest students to come here, study, and become entrepreneurs. Over 40 percent of the growth of the Silicon Valley in the 1990s came at the hands of foreign-born entrepreneurs.

Finally, why not put some government spending into research and development for defense? We need more sophisticated protections against biologics and tactical terrorist weaponry, including cyber-assaults. Spending in these areas would bring forth thousands of new companies whose innovations and new jobs would be of great benefit to our economy, and help maintain America's position as the world's preeminent power.

There is genuine and mounting public anger over the mishandling of the economic crisis so far and the failure of various measures such as TARP to stop the bleeding as promised. The more government spends, and the deeper it sinks the country into debt without doing anything to promote job creation and growth, the more the anger will deepen and spread.

The American people, as ever, understand what is best for their country. They know that entrepreneurs and the new business they start - not government spending programs - are the way out. The politicians in Washington need to listen to them, and govern accordingly.

Carl J. Schramm is president and CEO of the Kauffman Foundation. Douglas Schoen is a Democratic pollster and political consultant.


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