Wednesday, January 15, 2020

Family Businesses and Entrepreneur Zones

There are more than 5.5 million family businesses in the United States. These businesses are responsible for 57% of the country’s GDP and employ more than 98 million people (63% of the workforce). Most importantly, family businesses account for 78% of all new job creation. Tragically, many policy makers are not aware of the contributions of these businesses to the economy. They therefore unknowingly implement policies that limit the ability of family businesses to grow and hire. These enterprises are the “heart” of the American middle class because they provide the income that residents need to survive in this expensive country. Increasing the number of successful family businesses in the US is the only sustainable way to generate the tax revenue and employment necessary to reduce middle class taxes and increase the quality of life in every part of the country. This is especially true in the poorest urban communities.

The best social programs create jobs. The quickest way to turn around low-income communities is to create new jobs that provide previously poor households with the income they need to pay their monthly bills on time. The most effective way to create these jobs is for states to provide the tax incentives, regulation relief and financial support that entrepreneurial family businesses need to help them increase profitability and employment in the local community. I believe that governor’s offices and state legislatures should work together to create these needed jobs through a program I call “Entrepreneur Zones” within the poorest sections of urban communities across the country.

The Tax Cuts and Jobs Act passed by Congress in 2017 contains a unique economic development and tax incentive called “Opportunity Zones.” This program was designed to encourage long-term private capital investment in low-income communities in the United States. The purpose of this tax incentive is to spur economic development and job creation in distressed communities by providing tax incentives to investors. However, the Opportunity Zones encourage investment in real estate assets, not entrepreneurial businesses in poor communities.

Many of the “Empowerment Zones” created in the 1990s were not successful because of the weak investment incentives, program complexity and lack of focus on creating and supporting entrepreneurs. I am suggesting that Entrepreneur Zone legislation be created to ensure that a significant amount of the money invested in Opportunity Zones is focused on increasing the number of jobs and business tax revenue for municipalities and states. The establishment of Entrepreneur Zones should ensure that investments in Opportunity Zone locations are more impactful than they were in Enterprise Zones.

Businesses located in these Entrepreneur Zones would benefit from lower state and local business taxes and relaxed state regulations. In addition, these businesses would receive tax incentives based on the number of new employees that they hire. Lenders and venture capitalists would also receive favorable tax treatment for loans or investments provided directly to companies in the Entrepreneur Zones. States would make these financial investments attractive by providing tax credits or possibly tax deductions similar to those received for contributions to nonprofits.

The only sustainable way to increase jobs and significantly reduce the unemployment rate is for state and local governments to create Entrepreneur Zones. These zones can provide the financial and other incentives necessary to help family businesses succeed and create local jobs providing sufficient income to pay basic household bills. To incentivize cities to invest in the Entrepreneur Zones, the legislation should empower states to provide supplemental financial support to family businesses in urban municipalities that hire local employees. This will reduce welfare expenditures and motivate municipal and county leaders to make these Zones a priority. The incredibly high poverty rates in urban communities are a major crisis that needs immediate attention. I am convinced that the Entrepreneur Zone program will be supported by Democrats, Republicans and Independents because it will reduce taxes and poverty by providing financial incentives and regulation relief for the biggest job creators in the poorest communities in the country.

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