2016-11-08



Richie Hecker

Crunch Network Contributor

Richie Hecker is an investor and the chief executive of Traction & Scale.

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Both candidates talked about creating jobs. One wants to cut taxes and the other wants to increase them. While they debated whose plans will make America great and whose will make America broke, here is an innovation plan that will guarantee to not cost America any money, and will usher in the greatest wave of innovation since the industrial revolution. Bold claims — yes — yet there is no government spending required to implement this plan and it should increase innovation spending by 25X!

Where does job growth come from? Job growth comes from innovation. Since 1979, 82 percent of all R&D spending and 38 percent of all employees at public companies are from venture capital-backed companies. This represents more than 4,000,000 jobs, according to a Stanford study led by Professor Ilya Strebulaev.

“The data shows that venture capital is the backbone of U.S. growth. Even though the venture capital industry is a relatively small part of global finance, its impact on the economy is multi-fold,” said Strebulaev. “Moreover, many of the companies funded by venture capitalists would likely have never been funded by other sources of funding creating new jobs.”

At the heart of venture capital is technology. Technology drives waves of innovation, which in turn creates high-paying jobs. What matters to the tech industry is to make it as easy as possible to innovate. The easier it is to innovate, the more jobs that are created and the more long-term prosperity for the country.

Our next president can implement these simple policies, which will unleash a torrent of innovation without a single dollar of any new taxes or government spending.

“The federal government is one of the last places that hasn’t been fundamentally disrupted with innovative practices. Presidents and Congress haven’t come to the terms that the job creation going around the country is being driven locally and supported locally, so the job of Washington should be to make what is already happening, easier,” stated ABC chief political analyst and entrepreneur Matthew Dowd.

Successful entrepreneurship requires innovation, skills and capital.

To usher in innovation you need to do the R.I.T.E. thing: Regulation, Investment, Talent and Entrepreneurship. Simplify regulation, bring new capital into the market, invest the capital in talent and seed the cycle of entrepreneurship. Then watch the seeds grow into employment.

According to the Bureau of Labor Statistics, there are 7.8 million unemployed Americans as of the end of August 2016. According to the Kauffman Foundation, 1.5 million jobs are created each year from companies less than one year old. One could assume that if we can increase startups by 6X we would have 100 percent employment. Now imagine if we can increase innovation spending by 25X!?

Regulation

Make regulation easy for startups and we’ll see more innovation. As consumers, we all benefit from regulated services. Regulations keeps us safe. However, regulations also stifle new entrants.

Ideally, we want to both be safe and to allow experimentation as technology evolves. Right now we have serious regulatory challenges. For example, sharing-economy workers are in a weird place. Let’s say you drive for Uber, Lyft and Via, all at the same time, and you optimize which service to use to get passengers ride by ride. Are you an employee of any of those services or do you work for yourself? Right now, it’s murky with the law veering toward employee status. The reality is if you are providing the same service to multiple clients, it feels more like you work for yourself.

We need to at least create clarity on this issue, preferably creating a new status for single-member businesses. Right now it costs between hundreds and thousands of dollars to incorporate and there is still lack of clarity on HR status.

Let’s GO already. Let’s create GO LLCs. They would be pass-through entities and cost $9.95 a month. They would be valid only for solo entrepreneurs. Once inside a GO LLC, you would be working for yourself. You would get the benefits of being able to take deductions on your taxes for your business expenses and it would be clear and simple labor law. Also, because it would be so inexpensive and on-demand, everyone would be able to take advantage of it. The government will also generate new revenue from entrepreneurs who will happily pay for this protection.

No speeding tickets. Startups break shit. Let’s make it easy to break shit in a controlled fashion. We should have innovation fast lanes, which would be government-backed accelerator programs. These accelerators would come with mentorship by government officials and give startups short-term licenses to test models that would otherwise be against the rules. This would be a tough program to get into and we could require a bond be put up in case something goes wrong.

The concept is to allow people to experiment and see how stuff works. Right now, companies just break the law and figure it’ll be fixed later. This creates liability issues that aren’t properly covered by insurance and companies often fail after losing lawsuits on these issues. This way, we create a safe haven for innovation within the law.  It’s better for everyone than the free-for-all, cat-and-mouse game that happens now.

“If states want to diversify their economies and create tech jobs, they have to do more than say so in press releases,” said Bradley Tusk, CEO of Tusk Ventures and a policy advisor to leading startups. “Make it feasible for startups to operate by removing some of the red tape and obstacles in their way. That’s what Innovation Lanes does — it doesn’t remove safety measures or consumer protections, it just finds a way to apply them smarter and faster than before.”

Investment

We need to use taxes to create the greatest investment boom in history!

Everyone hates paying taxes. Corporations hate paying taxes so much that, according to OxFam, U.S. companies hold $1.4 trillion dollars offshore. Instead of arguing over long-term tax policy, let’s start simple. Repatriate the funds sitting offshore in a way that guarantees innovation!

Technology drives waves of innovation, which in turn creates high-paying jobs.

We should be using the tax code to encourage creation of good new jobs. There are too many loopholes to park cash overseas forever. Let’s assume this cash is never coming back. Until now…

First, some context. According to the National Venture Capital Association, $58.8 billion was invested in venture capital in 2015. Let’s see how we can increase this by an order of magnitude.

Let’s invite corporations to PAY $0 TAXES on $1.4 trillion in cash parked offshore if 100 percent of the repatriated cash gets invested in innovative jobs and startups. That’s right, we offer a 100 percent tax credit if the money goes toward investments that create jobs. We can even require it to create jobs that pay at least 2X the national average and are in areas of innovation to explicitly make certain the capital is going to spur growth.

Allow this as a one-time exception to bring cash into the U.S. and usher in a wave of innovation. Yes, some people will say this is unfair — the response is we have to think practically. This is the only way it’s coming back and it’s for the greater good. And, by the way, this will generate significant payroll, income and sales taxes, increasing government revenue.

If the $1.4 trillion stashed overseas is invested in innovative jobs in the U.S., that would be an investment that is 25X larger than how much venture capital is invested each year in the U.S. Imagine how many millions of jobs would be created with that much capital going into innovation? This much innovation capital will unleash the greatest wave of innovation the world has ever seen. We can have 100 percent employment.

For the long term, there is a larger question at play, which is what tax incentives are available to entrepreneurs. Right now it is a hodge-podge of state regulations and it is just plain confusing. “We need a comprehensive tax code that creates new businesses while incentivizing investors,” explained Brian Cohen, vice chairman of the New York Angels and the first investor in Pinterest. “Both must be aligned, especially for scalable companies that require ongoing venture investment.”

Talent

Once the capital flows in, it will have to be invested in talent, so let’s get training. Skills lead to jobs. Great jobs go to great talent. Great talent builds great products. So how do we get the best talent?  We nurture it, or we import it and keep it. Right now the best jobs are in STEM fields — science, technology, engineering and math.

College degrees are helpful, but they no longer determine access to the best jobs.

According to CBS News, STEM jobs pay $85,570, almost twice the national average. These are the high-tech jobs that fuel growth. We should be incentivizing students to study STEM, providing incentives for employers to hire more STEM workers and importing them from overseas when we have shortages. The government has a number of policies that have started this process and here is a simple way to scale creating great talent:

Promote free STEM-skill training. College degrees are helpful, but they no longer determine access to the best jobs. What do you think is more likely to lead to a high-paying job, STEM-skill training or a degree in English Literature?

Luckily, skill training is much cheaper than college, and often can be accessed for free. For example, you can study at MIT for free — they have an open courseware program, where you can study all the course materials free of charge. The government should  be promoting these training programs.

Partner with digital academies. The government can promote free and low-cost STEM training classes by partnering with digital academies like Khan Academy, Udemy, General Assembly and Codecademy. We can ask digital academies to offer free courses for students, promoted by the government, in exchange for them being able to up-sell other courses to those who can afford it. This way we can train millions of people in new skills, and bring them into the tech workforce, where they can get great jobs.

Rethink libraries as education hubs. What if people don’t have a computer? If people don’t have a computer, the government can recommend students go to the local library to use the computer. The government can then allow limited corporate sponsors to fund new computers at these libraries. Companies like Facebook, Google, Microsoft and Apple would likely sponsor these libraries. Students as young as nursery-school age, and from all economic backgrounds, should have the ability to learn STEM skills.

Learn by doing. We can change labor laws to allow students to work at unpaid work-study internships so they can get actual experience. These work-study internships should be limited to startups and struggling companies that otherwise could not afford to hire people. Make it easy for students to practice their trade and for companies to get people who want to learn to work.

Import talent. When companies have shortages, make it easy to import workers with H-1B visas — but require them to pay the same wages as they would pay for local talent. This would encourage companies to hire local talent first because they will be less expensive than paying visa costs in addition to salaries. This will generate revenue for the government through visa fees, payroll and income taxes that otherwise wouldn’t be generated.

Expand startup visas. Finally, allow more startup visas, so if someone commits to starting or investing in a company, they can come to the U.S. This would be an expansion of the EB-5 visa program by making technology companies eligible and increasing the visa quota. The more startups, the more jobs — the more jobs, the more growth… and the more we all benefit.

Entrepreneurship

Feed the cycle. When you give people skills, they earn more income, and then they can build more startups. Encourage entrepreneurship by making it easy to connect with the startup community and get access to mentors and investors. Most people just need to be pointed in the right direction. The government can create a digital property that serves as a hub to connect people to entrepreneurial communities. We can also  turn the unemployment office into the startup office, pointing people in the direction of startup resources and communities.

When you combine the elements to do it R.I.T.E., you create a framework for scaling entrepreneurship. Successful entrepreneurship requires innovation, skills and capital.

Making regulations smart gives people breathing room to operate so they can focus on innovation instead of regulation. When you bring massive capital into the market, this directly creates good jobs. Then, make it easy for people to learn new skills to be able to access these jobs and see their incomes increase. Higher incomes then give people the opportunity to invest in entrepreneurship themselves. Thus, the cycle continues.

So Mr. or Ms. President, please do the R.I.T.E. thing. Regardless of who wins the election, the people should win. Unleash entrepreneurship and watch our country flourish.

Featured Image: Bryce Durbin/TechCrunch

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