The Big Story: Congress tees up tax and immigration fight
Congress is preparing to advance President-elect Donald Trump’s sweeping agenda, which includes tax and immigration policy changes that could dramatically impact startups. Tax policy must address startup needs by extending tax cuts that lower overall burdens, incentivize investment, and foster entrepreneurship. While Republicans are leading the immigration reform conversation with concerns about border security and pledges to deport, lawmakers must also recognize the contributions immigrants make to startup ecosystems across the country. While these reforms are set to move through an expedited reconciliation process this spring, complex and controversial provisions—such as restrictions on immigration and how to pay for extending tax cuts—may face significant challenges.
Renewing and expanding tax provisions implemented under 2017’s Tax Cuts and Jobs Act’s 2 could play a pivotal role in supporting startups. Policymakers should pursue policies that help startups stretch their limited budgets, including by returning to immediate expensing for R&D costs. To incentivize investment in startups, policymakers should implement a federal angel tax credit and should preserve the current capital gains and carried interest tax treatments, which support diverse founders and emerging fund managers. Policies that incentivize employees to join early-stage companies—such as expanding the Qualified Small Business stock exclusion—are also critical, as they allow startups to attract the talent they need to succeed. Maintaining the 20 percent pass-through deduction ensures parity with C corporations and helps small businesses to reinvest in themselves and scale. Finally, expanding the Child Tax Credit and other family-friendly policies will enable more people, particularly working moms, to pursue entrepreneurship.
A reconciliation package this Congress will likely focus on securing the border in addressing immigration. However, policymakers should use momentum on immigration to advance high-skilled immigration reforms that support founders and strengthen the startup ecosystem. High-skilled immigrant talent, including startup founders and STEM employees, is essential for driving innovation and boosting the STEM workforce. But, Congress has repeatedly failed to enact reforms to improve pathways for needed talent, including providing a permanent solution for Dreamers, creating a startup visa, and implementing graduation green cards. Policymakers should build on bipartisan support for high skilled immigration; without reform, all U.S. companies, including startups, will struggle to attract the talent they need.
As Republicans control both chambers of Congress and the White House, policymakers have the opportunity to advance tax and limited immigration reform using reconciliation—a process that allows measures with a revenue impact to pass the Senate with a simple majority, bypassing the usual 60-vote filibuster threshold. While this process could expedite key priorities like tax cuts and border security, policymakers should prioritize measures that support startups—such as preserving tax incentives that fuel innovation.
Policy Roundup:
Sixth Circuit strikes down net neutrality rules. The Sixth Circuit Court of Appeals ruled last week to vacate the Federal Communications Commission’s (FCC) net neutrality rules, which were issued in April. The agency’s net neutrality protections supported innovation and competition in the Internet ecosystem, and the court’s ruling could pave the way for ISPs to potentially block, throttle, or prioritize Internet traffic, putting startups with limited resources at a disadvantage.
States get jump on AI legislation. Several states, including California, Connecticut, Massachusetts, New York, Texas, Virginia, and others have already put forward legislation to regulate AI—making likely the emergence of a varied patchwork of state-level AI laws. Many of the bills mirror Colorado’s first-in-the-nation AI law, but have meaningful differences that will create duplicate costs and increase burdens on startups.
Updated O-1A visa guidance aims to support founders. The federal government released updated guidance on O-1A visas that clarifies who is eligible for the renewable “extraordinary ability or achievement” visa, including owners of businesses. This allows startups to file visa petitions on behalf of their foreign-born founders.
On the Horizon
TUES. 1/14: The House Ways and Means Committee will convene a hearing to preview priorities for a forthcoming tax package at 10:00 AM ET.
TUES. 1/14: The California Privacy Protection Agency will convene a public hearing on proposed regulations impacting AI at 2:00 PM PT.
WEDS. 1/15: The Federal Communications Commission will convene an Open Commission Meeting to hear agency staff presentations on expanding connectivity at 10:30 AM ET.
FRI. 1/17: The Federal Trade Commission will hold an informal hearing on a proposal impacting generative AI at 1:00 p.m. ET.
Startup Roundup:
#StartupsEverywhere: New York, New York. Chandler Malone, the founder of Path AI, witnessed the stark contrast in opportunities based on socioeconomic status growing up, which fueled his passion for making education more accessible. As the co-founder of Path AI, he is focused on using AI to create scalable, personalized learning tools that bridge these gaps. We sat down with him to discuss his journey, the role of AI in education, and his vision for the future of learning.
