If you’re a startup founder trying to decide where to base your company, there are advantages you look for. Is there an amazing local engineering program like Stanford or MIT pumping out graduates who want to stay nearby? What’s the business climate like? What about taxes? Quality of life? Can my employees afford to live here? Is it safe? Do we feel wanted?
New York has the underlying advantage of being, well, New York. But beyond that, we fail on just about every score. Maybe Cornell Technion will start producing engineers creating commercially viable startups, but I have yet to be pitched one.
Taxes here are high. The weather often stinks. Quality of life can be dicey. It’s very expensive to live here. Add in the lack of any real effort by the city or state to consistently work with early stage tech and assuming that startups will be in New York just because is a very dangerous assumption.
And yet that’s exactly what state Sen. Andrew Gounardes is assuming with his proposal to decouple New York from the federal qualified small business stock tax treatment. QSBS is an incentive meant to both spur investment in startups and small businesses and to make it more enticing for people to take the risk and lower pay of working for an early stage company.
Gounardes assumes that everyone who benefits from QSBS must be rich, so taxing them more doesn’t matter.
Gounardes is one of the smartest, most thoughtful legislators around, but in this particular case, he’s wrong — the provision mainly impacts employees at early stage companies who are typically paid far less than they would earn elsewhere. Taking away their incentive to do that means fewer great people willing to work at startups. And if startups in New York can’t attract the talent they need, they’ll go somewhere else.
In fact, startups are already choosing places like Miami and Austin over New York for all of the reasons above. While Gounardes may think that removing the QSBS tax incentive isn’t a big deal, because he lives in the often opaque world of Albany politics, he may not understand the signal it sends to the tech community: we don’t want you here.
Whatever revenue eliminating QSBS generates for the state will be dwarfed by the loss of companies leaving or never being created here in the first place: jobs, income tax revenue, sales tax revenue, and all of the economic activity those companies and their employees create.
And while the state Senate is now saying they don’t plan to take up QSBS this year, rejected ideas have a way of miraculously coming back to life when things get tough in the budget negotiating room. And bad ideas also have a tendency to reappear each year.
New York City has a great tech ecosystem, but it’s not like the real estate industry which has to be here. I’ve seen elected officials in places like Miami and Austin actively solicit early stage startups. That almost never happens here. People want to be wanted. And when they feel castigated instead, they go somewhere else.
We can’t afford that. Think about our major industries. Wall Street no longer needs to be anywhere near Wall St. Tourism is impacted by visas we don’t control. We need other industries to keep growing. Startups have risen to the occasion. But they don’t have to.
It would be great if Albany and City Hall actually worked proactively to develop the early stage tech ecosystem in New York. But at the very least, don’t encourage them to leave.
Tusk is a venture capitalist, political strategist and philanthropist.