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President's Desk By Gail Maderis, Acting CEO Increasing the flow of capital is a rapid way to increase jobs. However, the current debate in Washington centers on the extent to which we should provide stimulus to reduce unemployment in the near term at the expense of long term economic health. The two are not mutually exclusive. By providing incentives for corporations to spend additional capital on strategic national priorities such as renewable energy, treatments for costly chronic diseases, information technologies to reduce health care costs, etc., the federal government could have a major impact on short term job creation as well as developing products and technologies that will increase US competitiveness and yield substantial long term economic benefit.
A New Deal for Our New Economy
Many of the technology breakthroughs of the last few decades have come from small, entrepreneurial companies. These companies have traditionally been more creative, more productive, and have had a higher multiplier on employment than large corporations. However, their future is currently threatened by limited access to capital. While NIH and DOE grants have provided funding to these companies, federal agencies have limited resources to evaluate grants and the timelines for the grant process are lengthy. Corporate venture funds have traditionally played a key role in funding technology start-ups, but with the economic downturn, they are sitting on the sidelines. Providing tax credits to corporate venture funds for incremental investments in private companies involved in R&D in areas of strategic national importance, would have an immediate impact on employment as well as position the U.S. for long term recovery. This plan would have the following benefits:
· Leveraged Investment: By providing an incentive for corporate investment rather than direct funding, the government would be leveraging its expense at 1/corporate tax rate. The tax credit can be limited to incremental spending over prior year(s) investments to ensure that it promotes new capital flow beyond current levels. Providing a targeted credit, private companies can do much of the heavy lifting that the US Government has pursued over the last 13 months. Plus, the companies are less risk averse than a U.S. taxpayer and stand to benefit directly from their investments.
· Speed: Corporate venture groups already have the personnel and expertise to evaluate investment opportunities. By setting a short term window on the tax credit, the government can encourage rapid flow of capital to entrepreneurial companies.
· Enhance Long Term Recovery: During periods of economic stability, small, entrepreneurial companies are one of the fastest growth sectors. Providing capital to this sector will not only create short term jobs, but will advantageously position the U.S. for long term recovery. This is particularly important to California’s economic future.
· Success Rate: Large corporations are often the commercializers of entrepreneurial research. Linking these groups at an early stage will increase the time to fruition and probability of success and ensure that the investments are targeted to commercially valuable areas.
· Competitive Advantage: The New Economy is largely based on technological breakthroughs. While the US dominated this market in the 20th century, we are now increasingly vulnerable to competition from countries such as India and China. Incenting investment in entrepreneurial ventures will help the US maintain its competitive advantage.
There is no more critical time than now to transition the responsibility of the economic stimulus from the Federal government to the private institutions that have helped shape our economy over the last 60 years. In the name of American competitiveness, the government should provide these incentives only to companies investing in the priorities developed by the government.
What are those priorities? It should encompass the priorities set forth by the Obama Administration. To name a few in the medical field, it includes treatments for costly chronic diseases such as HIV/AIDS, cancer, diabetes, Alzheimer’s, cardiovascular and autoimmune diseases that place an enormous burden on our healthcare system. This incentive should not be limited to biotechnology. It should also include technology to reduce greenhouse gas production, improved information technology for healthcare, alternative fuel generation, improved feedstock for global health, and a reduced carbon footprint.
Providing a tax credit on incremental capital investment would increase capital flow and employment and will reward leadership from our corporate citizens in making long term investments in areas of strategic national importance. |
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