America is renowned as a startup nation. The American people have always encouraged and admired daring entrepreneurs who — through ingenuity, courage, and determination — create something out of nothing. These are the brave men and women who begin with an idea for an innovation and then start a new business that transforms their vision into reality.
Considering the risk involved in creating a startup, it’s unsurprising that most fail. But the survivors are critical to the American economy and our way of life. They introduce fresh inventions and business practices, force improvements in competing businesses, and as they grow, they provide jobs and contribute to the tax base.
Startups typically don’t receive a lot of national attention. They don’t have deep pockets to pay for lawyers and lobbyists to argue their case in D.C. and state capitals, or for sophisticated media operations to boost their name recognition. In fact, most entrepreneurs fund their startups through their own savings, without so much as a bank loan.
So you may not hear much about it when startups fall on hard times — like now. Although new firms comprised as much as 16 percent of all companies in the late 1970s, that percentage has dropped by about half, leading to a 15-year pause in the creation rate for startups. Furthermore, the rate at which successful startups are expanding has slowed significantly.
So what can we do to encourage entrepreneurship? That is a main focus of my business tax reform bill, theAmerican Business Competitiveness Act, which I introduced today in the House of Representatives.
The ABC Act has four main components: it will allow 100 percent, same-year expensing for all businesses; lower the maximum business tax rate to 25 percent; eliminate all loopholes and special deals; and switch to a territorial international system.
These changes would revolutionize the business tax system, much to the benefit of startups. To begin with, our impossibly complex business tax code would be effectively abolished, replaced with clear, simple, uniform rules. Entrepreneurs would no longer face the choice of spending much needed capital on accountants and tax lawyers or wasting countless hours of time navigating the code themselves.
Second, it would make it easier for entrepreneurs to afford to open a business, since they could expense all their initial business investments in the first year.
Finally, the ABC Act will make it easier for startups and small firms to compete with corporations. The biggest companies often enjoy all sorts of tax breaks that give them a leg up on their smaller competitors. But under the ABC Act, all companies will be subject to the same simple rules regardless of their size or how they’re organized. Entrepreneurs could go into business knowing they’ll compete on a level playing field, with their success solely dependent on their ideas and initiative, not their ability to secure tax breaks that they need just to stay competitive.
Even as it gives startups some vital assistance, this new system will also help bigger companies. With simple rules, low rates, and 100 percent expensing, they’ll have a major incentive to invest money and expand their operations. And by switching to a territorial system, they will be enticed to repatriate money stashed abroad back into the United States. In fact, the ABC Act will turn the United States into a giant tax haven, instantly giving us the most competitive business tax system in the world.
But I want to focus on the little guys — the basement tinkerer who builds a better appliance and the computer hobbyist who devises a new application. Every one of these people has just as much of a right to compete in the marketplace as bigger businesses do. It’s time we gave entrepreneurs more freedom and opportunity to realize their dreams. They may succeed or they may fail, but they deserve an equal shot — and the ABC Act will give it to them.