PRIORITY

Entrepreneurship

Small businesses are the backbone of our economy and the embodiment of the American dream — it is our duty to protect, uplift, and encourage entrepreneurship all across our country.

Small business is one of the great engines of the American economy. According to the Small Business Administration, small businesses (which SBA defines under 500 employees) account for 65.9% of net new jobs created from 2000–2017 and comprise 41.1% of private sector payroll. [1]

Yet America’s startup economy is slowing down. Fewer people are deciding to become entrepreneurs. [2] According to the Census Bureau, 414,000 startup firms created 2.5 million new jobs in 2015, below the average in the 2002–2006 period of 524,000 startup firms and 3.3 million new jobs per year.

The peak was in 2006, when 558,000 startup firms created 3.4 million jobs. [3] Simply returning to those 2006 levels of American innovation would result in 150,000 new startups and 900,000 additional jobs compared to our current track. [4] Hickenlooper believes that, with the right policies and leadership, it is possible to spur multiples of that kind of expansion of entrepreneurship and start-ups.

The decline in start-ups in recent years is partly due to the rise of competition-strangling mega- firms in many sectors after decades of erosion in antitrust enforcement. America’s two largest hardware stores now control 80% of market share. Currently, four companies control 98% of the cell phone service provider market share. Fully 56% of all e-commerce is controlled by Amazon and eBay. Even America’s beer industry is 75% controlled by just three companies.

Such market domination creates opportunities for sector giants to undercut competition from small business in numerous ways, from locking them out of supply chains, to outright buy-outs of potential new entrants in the sector. Monopolistic companies also use tactics such as non- compete agreements to prevent employees in their sectors from starting their own firms. Nearly one in five American workers are subject to non-compete clauses, and research shows that states with enforceable non-compete agreements have lower rates of within-industry entrepreneurship. [5] [6] One study finds that enforceable non-compete agreements may lead to an 18% reduction in new firms in knowledge-intense fields.

America’s entrepreneurs also face an adverse federal incentive structure. A series of federal policies subject small firms to major new costs and regulations (e.g., on the federal minimum wage, healthcare coverage, unpaid leave) once they pass a certain threshold (e.g., 50 employees). Yet there are few federal provisions to help small businesses overcome such “cliffs” and scale their businesses. [7] Partly due to such asymmetrical policies, the chances that a new company can grow to $10 million of revenue by its fifth year are around 0.5%, according to a 2015 Deloitte study. [8]

As President, Hickenlooper will address the rise of market domination by strengthening anti-trust laws and by providing additional federal support to small businesses in order to grow, particularly in rural areas.

Colorado record

This set of policies flows from John Hickenlooper’s life experiences. John Hickenlooper moved to Colorado in 1981 to pursue a career in geology. In 1986, due to a downturn and changing economy, John and thousands of other geologists to lost not only their jobs, but their profession. John was out of work for two years. In 1987, he and some friends decided to start their own business. Using a library book on how to write a business plan and cobbling together loans from the local government and family and friends, they opened a brewpub in an abandoned warehouse district. Rent was cheap in this forgotten corner of Denver, costing only one dollar per square foot per year. John worked with other small businesses to create a dynamic, new neighborhood that became a national model for urban revitalization — now known as LoDo. John ultimately opened 15 brewpubs and restaurants, almost all in historic buildings, mostly across the Midwest. As he did in Denver, he worked closely with other businesses, nonprofits and local governments to help revitalize the downtowns around each of his brewpubs. Hickenlooper saw how small businesses can transform a community, and he is committed to their strong growth as president.

Changing the focus on antitrust laws

In the late 1970s, the so-called “Chicago School” began to undermine the role of antitrust laws in protecting upstart businesses from unfair competition. This school of thought posited that antitrust intervention was more likely to harm consumers — to take actions that were “false positives” in their words — than to protect consumers by enabling competition. In a range of areas, including the rules of predatory pricing and what constitutes monopoly conduct, the Chicago School approach gutted the effectiveness of antitrust law. By picking antitrust enforcers who espoused this approach, and by picking judges who championed it, our antitrust laws are no longer working effectively on behalf of consumers and entrepreneurs.

The results of the Chicago School agenda are in and they are a more concentrated economy, a harder environment for entrepreneurs to build businesses, and a more difficult environment for consumers and workers. As President, Hickenlooper would:

  • Push for a “post-Chicago School” approach to antitrust, appointing enforces who appreciate the need to encourage competition, nominating judges who are committed to the original aims of the antitrust laws, and supporting legislation and administrative actions that encourage competition.
  • To support these goals, he would support legislation to restore the Clayton Antitrust Act to its original purpose of encouraging competition instead of solely focusing on general public welfare.

Codifying a right to repair

Big corporations have been intentionally making their products more difficult to repair by adding software that prohibit non authorized repairmen from doing the work. These practices prevent owners of products and small businesses from doing the work and increase the costs for consumers because of the lack of competition.

As President, Hickenlooper would encourage Congress to pass legislation that prohibits companies from preventing others from repairing their high-value products by:

  • Outlawing diagnostic authorization
  • Requiring companies to release repair-related manuals.

This proposal would be directed towards large purchase like automobiles and agricultural equipment. This change would lead to more market competition amongst repairmen because smaller shops could fix a greater variety of products.

Limiting non-compete agreements and prohibiting non-poach agreements in franchises

Too many American workers have lost the ability to break out on their own because of non- compete and non-poach agreements. Companies should not be able to tell their employees they can’t look for better opportunities elsewhere. These agreements stifle innovation, suppress wage growth, and prevent workers from taking the skills they have learned to new adventures. States that do not enforce these agreements see more innovation, more startups, and higher wages for employees.

As President, Hickenlooper would urge Congress to:

  • Pass limits on non-compete agreements in hiring contracts to short durations
  • Prohibit non-competes for non-exempt employees
  • Force companies to prove genuine harm before legally enforcing the agreements

Hickenlooper would also enforce our antitrust laws appropriately to prevent franchises from using “no poach” laws to prevent workers from benefiting from competition.

Federal data collection and publishing

The federal government’s commitment to addressing and understanding industry consolidation needs to be redoubled. In 1981, the Federal Trade Commission stopped publishing and collecting industry concentration data. [9]

As President, Hickenlooper would bring back the required 1981 Federal Trade Commission reporting on industry concentration. Moreover, he would also commission more studies and analyses, including retrospective evaluations of consummated mergers, providing guidance for future work and even investigating whether completed mergers should be undone.

Fueling growth for micro-businesses with a new $50 billion tax credit

This “Mom & Pop” tax credit allows owners who are actively engaged in managing their microbusiness (businesses with 5 or fewer full-time employees and with revenues of less than $10 million annually) to receive up to $50,000 in lifetime tax credits based on two years of demonstrated growth of the business. [10] The applicant may earn a credit equal to 20% of the payments in new investments or new employment at the microbusiness. The total lifetime tax credits claimed by any single applicant and any related persons are limited to $50,000.

The Small Business Administration would be authorized to award tax credits up to $5 billion each calendar year, plus any unclaimed credits carried forward from the prior year. This would result in 1 million micro-entrepreneurs being eligible for a $50,000 tax credit.

Fueling rural and distressed-area growth — $10 billion investment in “Entrepreneurial Opportunity Zones”

Based on the Colorado Rural Jump-Start program, Hickenlooper also proposes a new national program of Entrepreneurial Opportunity Zones, which will provide incentives for entrepreneurs and workers in rural and distressed areas by providing tax relief to new businesses and new hires of these businesses. Companies participating in the Jump-Start program must:

  1. Have a relationship with a local/regional state higher education institution
  2. Be in one of the existing 8,700 Opportunity Zones nationwide
  3. Be new to the Opportunity Zone
  4. May not directly compete with existing business in the Opportunity Zone
  5. Hire at least 5 new FTEs in the Opportunity Zone

All New Businesses that are approved for participation in the program receive a 25% deduction in corporate income taxes for five years. All New Hires that are approved for participation in the program receive a 25% deduction in federal income taxes for five years

The Jump-Start Zone program is exclusively for businesses designated as new businesses. The Entrepreneurial Opportunity Zone program will be capped at providing $10B in tax relief annually with each Opportunity Zone receiving an allocation of at least $1,000,000 in tax incentives.

[1] https://www.progressivepolicy.org/wp-content/uploads/2019/02/PPI_Escaping-the- Startup-Trap_Feb-2019.pdf and “Frequently Asked Questions,” U.S. Small Business Administration Office of Advocacy, August 2018; https://www.progressivepolicy.org/wp- content/uploads/2019/02/PPI_Escaping-the-Startup-Trap_Feb-2019.pdf and “Frequently Asked Questions,” U.S. Small Business Administration Office of Advocacy, August 2017 https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf

[2] https://files.taxfoundation.org/20190403131203/Tax-Policy-and-Entrepreneurship-A- Framework-for-Analysis1.pdf new and https://www.kauffman.org/what-we- do/research/business-dynamics-statistics/business-dynamics-statistics-briefing-jobs-created- from-business-startups-in-the-united-states

[3] https://www.census.gov/library/stories/2018/01/startup-firms.html

[4] https://www.census.gov/library/stories/2018/01/startup-firms.html

[5] https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2625714

[6] https://pubsonline.informs.org/doi/10.1287/mnsc.2016.2614

[7] https://www.progressivepolicy.org/wp-content/uploads/2019/02/PPI_Escaping-the- Startup-Trap_Feb-2019.pdf

[8] “Scale-Up: The Experience Game,” Deloitte Fast Ventures. https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/deloitte-analytics/deloitte-nl-data-analytics-onderzoeksrapport-scale-up-the-experience-game.pdf

[9] https://digitalcommons.law.utulsa.edu/cgi/viewcontent.cgi?article=1613&context=tlr

[10] Nebraska currently offers an Advantage Microenterprise Tax Credit that is similar to this approach: http://www.revenue.nebraska.gov/incentiv/microent/micro_guide.html

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