National Dialogue on
Entrepreneurship

Week of August 9 - August 13, 2004

Welcome to the National Dialogue on Entrepreneurship, an initiative of the Public Forum Institute made possible by a grant from the Kauffman Foundation of Kansas City. Through e-News, we bring you short summaries and analyses of various trends driving the innovation economy. Current and archived issues of e-News are available online at www.publicforuminstitute.org/nde/news/enews.htm. To subscribe, visit www.publicforuminstitute.org/nde/join/

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CAPITOL HILL UPDATE

Now that the Democratic Convention has ended and the slow August recess period is upon us, we decided it was finally safe to take a look at what’s been happening in Congress. This week’s issue provides an update on some of the key issues and measures of interest to followers of the entrepreneurial economy. Congress will have a lot of work on its hands when it returns in September, but, in the meantime, here’s the status on key pieces of legislation.

Appropriations Bills

Small Business Administration (SBA) programs: The full House of Representatives has passed an appropriations bill for the SBA that foresees a cutback in spending for FY2005. Overall, the House bill provides $672 million for SBA—a $39 million drop from last year. Within this broader budget cut, many programs of interest to e-News readers (e.g. Small Business Development Centers, the Women’s Business Center program, and various microloan initiatives) received funding levels at or above last year’s totals. The bill also restores funding for SBA’s popular 7(a) loan program. The Senate Appropriations Committee has yet to act on this measure.

Department of Commerce: Commerce Department spending has also been approved by the House. Given growing concerns about US manufacturing, most observers have been closely following the fate of the Manufacturing Extension Partnership (MEP) a program that was drastically cut in FY2004. The House bill reverses the move to return MEP to its original funding plan and restores full funding to the MEP, with spending to reach $106 million in FY2005. This represents a major increase from last year’s spending level of $39.6 million. MEP is also progressing on a separate track through the authorization process. The House has passed H.R. 3598, the Manufacturing Technology Competitiveness Act of 2004, which will reauthorize the MEP for an additional five years. While funding for MEP looks solid, Commerce’s Advanced Technology Program (ATP) faces major budget hurdles as the House backed the Administration’s plan to eliminate the program, agreeing that it has neither a unique nor significant impact on the advancement of high-risk technologies.

Department of Defense: Only one appropriations bill—for the Department of Defense---has been passed by Congress to date. People may differ about the details of the defense spending plan, but no one can doubt that the FY2005 bill includes a lot of support for business. Spending for both defense procurement ($77 billion) and R&D ($69.9 billion) will hit record highs next year. 

R&D Spending: As appropriations bills move through Congress, the overall picture regarding R&D spending is quite mixed. If you work in the defense world, you should be ecstatic due to record-high defense R&D and procurement spending. You won’t be too happy if you’re tapping technology funds from elsewhere in the government. National Institutes of Health (NIH) funding rises slightly (2.1%) but nearly all other civilian R&D programs (Commerce, NASA, NSF, and EPA) face major cutbacks. Congress has not yet completed action on any of these bills, so final figures may be changed in the coming months. 

Taxes

The big issues in tax policy concern whether Congress should extend many of the tax breaks originally included in tax reduction packages passed in 2001 and 2003. The House of Representatives has put itself clearly on record in support of extending the tax cuts, especially those breaks that help support small businesses. In fact, the House has voted on three occasions to extend Section 179 expensing (through 2007), a rule that allows small businesses to deduct the cost of equipment purchases up to $100,000. The latest vote (424-0) came in support of H.R. 4840, the Tax Simplification for America’s Job Creators Act of 2004. This bill also allows more small firms to use the cash accounting method instead of the accrual method. The Senate has yet to act on these proposals. 

Other Bills

Entrepreneurship Education: At present, the House and Senate Education Committees are considering reauthorization of the Carl D. Perkins Vocational and Technical Education Act (HR 4496). This measure still has a long haul before final passage, but some good news is already emerging. The House Education Reform Subcommittee has approved an amendment (by Rep. Tom Osborne, R-NE) that allows these funds to be used to support entrepreneurship education programs.

Stock Options: On July 20, the House of Representatives gave an overwhelming vote of support to the technology community when it overwhelmingly passed (312-111) H.R. 3574, the Stock Option Accounting Reform Act of 2003. This bill mandates that stock options only be expensed for a company’s top five executives; it also provides exemptions for small businesses. This view runs contrary to the recent Financial Accounting Standards Board (FASB) ruling that firms must now include all stock options as expenses in their financial reporting. A similar bill (S. 1890) is still awaiting action in the Senate. 

SBA Report Offers New Look At Entrepreneurship In The 21st Century

Entrepreneurs are a dynamic force that will dramatically shape America's 21st century economy. Yet they will be buffeted by many forces, some of which will require innovative public policy responses. These findings are central to a new report issued by the Office of Advocacy following a conference co-sponsored by the Kauffman Foundation of Kansas City.

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Mark Marich, Editor - mark@pfidc.org