Brian Schutt: Legislature should consider pro-startup incentives

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To build off the momentum of entrepreneurship post-COVID in Indiana, Gov. Holcomb and Statehouse leaders should prioritize the adoption of pro-startup measures that would increase the tailwinds for new businesses in the state by reducing barriers to entry, decreasing friction to grow, and accelerating access to capital.

Before addressing the “what” and “how” of policy recommendations, it’s helpful to remember the “why” behind entrepreneurship as a priority. It matters because new businesses create almost all net new jobs. Areas with job growth have a variety of measurable downstream benefits, from an increased tax base to larger charitable giving.

But it goes beyond that. More innovation and entrepreneurship in a place impact its culture in a multitude of subtle but cumulatively significant ways. And, according to the Goldwater Institute, every 1% increase in entrepreneurial activity in a state correlates to a 2% decline in poverty.

For both Main Street entrepreneurs in lower-growth sectors and highly scalable companies in more innovative space, the needs align as they relate to policy—fewer barriers to entry, reduction of compliance costs, and better aligned incentives to foster growth.

Right to Start has a list of 10 policy recommendations that could continue to accelerate Indiana’s emerging startup communities. In Kauffman’s research, 81% of entrepreneurs say government favors big businesses over them, 69% of entrepreneurs say government doesn’t care about them, and 41% of Americans would start their dream business in six months if they could. But only 2% do.

While fundamentally the individual must be the first-mover in business formation, the state should do what it can to make that process as easy as possible.

Among the Right to Start recommendations, the following are the highest-impact opportunities:

◗ Help create a “Zero Barriers to Start” environment by reducing or eliminating registration costs and fees for new businesses. Indiana currently falls near the middle of states in business registration fees, which could be lowered and have negligible impact on state revenue but significant benefit for startups.

◗ Continue to reduce licensing obstacles by reducing or eliminating occupational licensing burdens and permits for businesses, including home-based ones.

◗ While the business-tax environment is ranked ninth-best in the country, according to the Tax Foundation, we could push toward being the best by lowering tax hassles by allowing businesses to defer state income tax deadlines and/or skip filing income taxes for a year if net income is below $5,000.

◗ The state could provide more comprehensive tax relief for young businesses in their crucial first five years. This tax revenue tends to be small to the state but large by percentage for many new businesses. These savings disproportionately are reinvested into growth-related investments and new jobs.

◗ Noncompete reform to unleash entrepreneurs who want to create new jobs by freeing them from unfair bans and noncompete restrictions. It is estimated that one in five workers is held back by noncompete agreements, especially younger workers.

Beyond these Right to Start recommendations, Indiana should continue to support and improve upon the Venture Capital Investment Tax Credit by elevating the project cap, expanding the program cap and expanding the definition of qualifying investments. Fewer constraints and reduced compliance would lead to a greater flow of capital, accelerating growth.

As Holcomb wraps up his final term, visionary measures like the recommendations above would solidify his legacy by creating a long-term impact on the prosperity and dynamism of the state for decades.•

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Schutt is co-founder of Homesense Heating & Cooling and Refinery46 and an American Enterprise Institute civic renewal fellow. Send comments to ibjedit@ibj.com.


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