New Report Shows Outsized Impact of Tech-Based Startups on U.S. Economic Growth

New Report Shows Outsized Impact of Tech-Based Startups on U.S. Economic Growth

A newly released report from the Information Technology & Innovation Foundation (ITIF) demonstrates the outsized impact that technology-based businesses and startups have on U.S. economic growth, driving increased employment, innovation, exports, and productivity growth.

The report, How Technology-Based Start-Ups Support U.S. Economic Growth (the Executive Summary maybe found here), underscores the importance of ensuring that entrepreneurship policy focuses on spurring the creation of tech-based start-ups, for three reasons:

“First, most owners of new non-tech-based firms have no intention of growing beyond just a few employees. Second, small, non-tech-based firms on average have much lower productivity and wage levels than technology-based start-ups. And third, most non-tech start-ups are in local-serving industries (e.g., retail) and as such create few or no net new jobs. As such, the focus of entrepreneurship policy should be squarely on spurring more technology-based start-ups.”

ITIF analyzed 10 technology based industries:

According to the report, firms in technology-based industries (start-ups and established firms) make up just 3.8 percent of all firms, but provide much larger contributions to the economy:

The report recommends a number of policy steps that could be taken to spur the creation of more technology-based start-ups:

Tax Reform

  • Expand the rate of the Alternative Simplified Credit for research and development from 14 percent to at least 25 percent.
  • Amend Section 469 of the tax code to permit passive investors to take advantage of the net operating losses and research tax credits of companies in which they invest.
  • Amend Section 382 of the tax code to make it easier for small companies to carry net operating losses forward even as they continue to attract new investors.

Regulatory Reform

  • Create an Office of Innovation Policy within the Office of Management and Budget to review the impact major regulations would have on future innovation.
  • Charge the Small Business Administration’s Office of Advocacy with focusing solely on advocating for and reviewing federal regulations that affect new firms in technology-based industries.

Science, Technology, Engineering, and Math (STEM) Skills

  • Appropriate approximately $325 million over five years for the National Science Foundation (NSF) to award prizes to colleges and universities that dramatically increase the rate at which freshmen STEM students graduate with STEM degrees, and that demonstrably sustain the increase.
  • Shift more permanent resident slots away from family-based and other related immigration programs toward immigrant workers with advanced STEM skills.

Technology Transfer

  • Establish an automatic set-aside program that allocates a modest percentage of federal research budgets to technology-commercialization activities.
  • Develop a proof-of-concept, or “Phase Zero,” individual and institutional grant award program within major federal research agencies at the national level.
  • Direct the NSF to partner with the National Institute of Standards and Technology (NIST) to develop a metric for universities to report entrepreneurship and commercialization information annually.

Read ITIF’s press release announce the report here. The full report may be found here.

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