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The JOBS Act Could Spur Growth...and Pass Congress

March 5, 2012 by Robert E. Litan

I know it’s easy to be skeptical that during an election year, in a bitterly partisan environment, Congress and the President will be able to agree on anything that will boost growth. But, believe it or not, there is more than a sliver of a chance of that actually happening on one piece of legislation outlined last week by House Majority Leader Eric Cantor. Called the JOBS Act (every bill has to have an acronym, and even better if it has something to do with creating jobs), the Cantor proposal assembles a range of proposals that could substantially reduce the cost of raising capital for new companies and for rapidly growing companies that are going public. The key ideas, most of which have already passed the House with strong bipartisan support and have been supported by the Obama Administration, include:

  • Lifting the ceiling on so-called Regulation A stock offerings — which require only an audited financial statement but not the full range of SEC registrations and disclosures — from $5 million to $50 million;
  • Doubling the number of shareholders a company may have before it must go public, to 1000 from 500;
  • Exempting new companies for five years of going public from onerous internal auditing requirements under Sarbanes-Oxley;
  • Allowing new companies to “crowd-source” limited amounts of capital up to $10,000 per investor (and $1 million in total per year), without having to comply with costly SEC rules.

While each one of these ideas is modest, taken together, the package holds great promise for accelerating the formation and growth of high-growth companies, which we will need in abundance if we want a high-growth economy again. The House should vote soon on the package. Up to now, the Senate has been cooler to these ideas. Some Senators are worried that certain proposals — the crowd-sourcing one in particular — could invite scam artists to fleece investors. This is a legitimate concern, but could be addressed in my view by giving the crowd-funding idea a two or three year try-out, and allowing the SEC to cut back the dollar limits sooner if it finds that the exemption is being abused. I am old enough to remember the launch of eBay and the skeptics who said few people would ever trust others to do business on the site. Were they ever wrong! I have the same gut feeling about crowd-sourcing. People who are willing to part with as much as $10,000 (or even less) aren’t stupid. Firms trying to attract capital will develop and use innovative ways of validating their trustworthiness. Let’s hope that reason prevails and that the House and Senate can quickly find a way to iron out their differences and make it much easier for new and growing companies to raise the capital they need.


Author

Robert E. Litan

2012 Economic Growth Fellow

Robert E. Litan is Director of Research of B-Gov, a subsidiary of Bloomberg LLP. Previously Litan was Vice President for Research and Policy at the Kauffman Foundation and a Senior Fellow in Economic Studies at the Brookings Institution. He has authored or co-authored more than 20 books, edited another 14, and authored or co-authored more than 200 articles in journals, magazines, and newspapers. He has served in several capacities in the federal government. From 1995 to 1996, he was associate director of the Office of Management and Budget, and from 1993 to 1995 he was Deputy Assistant Attorney General. He received his B.S. in economics (summa cum laude) from the Wharton School of Finance at the University of Pennsylvania; his J.D. from Yale Law School; and both his M. Phil. and Ph.D. in economics from Yale University.

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