Bridging the Capital Gap
The SRI DGE Act is an ingenious, fiscally sound mechanism for keeping billions in the hands
of a group that makes the most efficient use of capital BY GEORGE GENDRON, EDITOR-IN-CHIEF
IN AN ECONOMY LIKE OURS, there
is always debate about government
intervention in the marketplace. But
there's no denying that today at
least some business groups need
help urgently.
In lower Manhattan we have an
entire population of 5,000 to 7,000
companies whose future is very
much in doubt as a direct result of
the terrorist attacks on the World Trade Center.
Meanwhile, down in Washington, just about every business in-
terest group imaginable has lined up on the steps of the Capitol
looking for a handout. Whenever a tax bill comes before Congress,
the special interests have a free-for-all. But there's something
particularly tawdry about the spectacle this time around.
Somewhere between the special-interest groups and the com-
panies in dire need lies another group of businesses that don't fall
into either category. I'm referring to the hundreds of thousands
of small private growth companies that play a critical role in
generating new jobs-particularly during recessions. & we note in
this month's special report on the state of the entrepreneurial
economy (see "Cloudy With a Chance of Monsoons," page 86),there
are signs that this time around, growth businesses may not be able
to serve as the economic shock absorbers they've been in the past.
Part of the problem has to do with what Douglass Tatum calls
the "capital gap!' Tatum is the founder and CEO of Atlanta-based
Tatum CFO Partners LLP,which contracts out financial execu-
tives on a part-time basis to early-stage growth companies. He
says that a while back he started noticing patterns of failure
among small, profitable growth companies, as an increasing
number of them began experiencing negative cash flow at an
accelerating rate.
Like most start-ups, those companies had been launched with
personal savings and credit-card borrowing, but the most suc-
cessful of them needed a level of financing that institutions in the
capital markets weren't able to provide. &
a result, many emerg-
ing companies found themselves in a kind of no-man's-land when
it came to financing their future growth.
Tatum took his concerns to Washington, D.C., where he worked
with Representatives Jim DeMint (R-SC) and Brian Baird
(D-WA) to come up with a solution: a limited tax deferral that
would bridge the capital gap. Under the so-called BRIDGE Act,
a company would be allowed to defer up to $:150,000 of federal cor-
porate income-tax liability when its revenues exceeded its av-
erage revenues for the two prior years by 10% or more. The amount
deferred would have to be repaid, with interest, over a four-year
period beginning two years after the deferral. Tobe eligible, a com-
pany would have to do its accounting on an accrual basis and
have total annual revenues of no more than $10 million.
The BRIDGEAct, if passed, would reduce tax revenues by $:1-4
billion in the first year but wouldn't cost taxpayers a dime over
the long term. In fact, it's estimated that the government would
wind up making $1 billion on the deal over 10 years-and that's
before factoring in any of the benefits that would flow from the
hundreds of thousands of additional jobs that would be created.
It is an ingenious, fiscally sound way to keep billions of dollars in
the hands of a group that makes more efficient use of capital than
any other group on the face of the earth.
o.orge Gendron (george.gendronOmo-n) Is theedltor-In-ohWof /no.
DECEMBER 13