The Obama Administration announced a Startup America initiative today at the White House, which mainly sounds like a verbal encouragement of startups and their job-creating opportunities more than anything. But there’s a little sweetener in there which shows that, still, the Administration sees tax cuts as the only step they can take on job creation. Among other announcements, the new budget proposal for fiscal year 2012 will include a permanent elimination of the capital gains tax for startup companies:

The President’s new budget will propose making permanent the elimination of capital gains taxes on key investments in small businesses, which was passed as a temporary provision in 2010 as part of the Small Business Jobs Act the President signed in September. The budget will also propose expanding the New Markets Tax Credit to encourage private sector investment in startups and small businesses operating in lower-income communities.

The Small Business Administration (SBA) will direct $2 billion in existing guarantee authority over the next 5 years to match private sector investment funding for startups and small firms in underserved communities, as well as seed and early-stage investing in firms with high growth potential, through its Small Business Investment Company (SBIC) program.

Together SBA and the Department of Energy will boost high-quality mentorship for cleantech startups, while the Veterans Administration is launching new training programs for Veterans who want to start new businesses.

The Department of Commerce will expand the i6 Challenge to help foster the commercialization of clean technologies, and are finalizing a plan to allow entrepreneurs to request faster review of their patents, an initiative that should lower patent pendency times overall and speed the deployment of new ideas to the marketplace.

Training and mentorship programs are fine, but the big news here is a huge tax break for startup companies. In general, if the idea is to use the tax code to encourage or discourage certain types of activity, then encouraging startups isn’t a bad idea. Startups do appear to hire at an accelerated rate than established ones, more than just “small business” versus “big business.” But isn’t the Administration at the same time planning a massive change to the corporate tax code, based on eliminating precisely the kind of tax expenditures we see here? In addition, I’m not sure how “startup” will be defined – what about an offshoot of an existing company?

There’s a larger fact sheet for “Startup America” here. But if you want to simplify, it’s about a tax break for entrepreneurs. That’s all that’s left of job creation efforts, from the view of the Administration.

David Dayen

David Dayen