Extend Tax Credit to Angel Investors,
Give Wings to Georgia’s Economy

March 22nd, 2013 by Leave a Comment

eckert_mikeBy Mike Eckert 

One of Georgia’s biggest challenges today is job creation. As simple as it may sound, it needs amplifying. When people work, the economy grows and so does tax revenue, which is critical to funding essential services like education, transportation and public safety. 

The unemployment rate in Georgia is 8.7 percent, a full percentage point higher than the national average of 7.7 percent and higher than our neighbors, Alabama (6.8 percent), Florida (7.9 percent) and South Carolina (8.6 percent).   

Since when have Georgians been willing to cede economic turf to its border states? 

Over the past 20 years a significant percentage of the new jobs in America have been created by small businesses. The Small Business Administration, which counts small businesses as those with fewer than 500 employees, backs that up: By that definition, 99.6 percent of the nation’s 4.8 million private employers that have been monitored for job creation for nearly a decade are small businesses, according to The Wall Street Journal.  Most large companies shrunk and innovation stopped. 

Unfortunately, entrepreneurs, graduates of Georgia’s fine University System, are packing up and taking their business ideas with them, creating an intellectual capital drain. Simply put, Georgia colleges, not to mention taxpayer dollars, are creating jobs for and in other states. 

Where do “angel investors” fit in?  

They find solutions for these types of challenges. These high-net-worth individuals place their own capital (money) in to high-risk, early-stage companies, usually at the startup stage, and they mentor young innovators. They are the wellspring of the American entrepreneurial system. Without angel investors many start up companies in Georgia would never see the light of day. 

What is important to note is that because these affluent individuals are allocating their own money, they can choose to invest wherever they desire: in public stocks, bonds, real estate, collectibles, precious metals, etc. The key for Georgia policy-makers, then, must be to incentivize angel investors to invest in Georgia’s start-up companies, led by Georgia’s entrepreneurs, so that new jobs stay in Georgia. This economic driver can be leveraged to the state’s benefit and it can help plug Georgia’s brain drain. 

Georgia’s Angel Investor Tax Credit took effect in 2011, providing a state tax credit of up to $50,000 annually for investors in early stage, startup companies in Georgia. The credit equals 35 percent of the amount invested and is available for investments in 2011, 2012, and 2013. Since then, angel investing in Georgia has been at a record high, defying most other economic trends during the same period.   

In 2012, the Atlanta Technology Angel Group was ranked nationally among the top 10 investment groups for capital deployed and companies invested, in large part because of the Angel Investor Tax Credit. This catalyzed the early stage start-up community; the increased activity drew the specter of increased venture capital and national attention.  

Now the Angel Investor Tax Credit is up for renewal by the Georgia Legislature. What is more important is that economic developers across Georgia have recognized the economic impact of this credit and are actively seeking an extension. They are well aware, too, that legislators and governors in more than two dozen states have implemented similar incentives and they are seeing like results. Clearly, angel investors have investment opportunities elsewhere, too.

State policy-makers should take heed of this statewide support. These pockets of development are in touch with the realities of the marketplace and the impact of the tax credit on their local economies. Allowing the Georgia Angel Investor Tax Credit to expire would not only limit job growth in future leading industries, it would immediately put the Capitol of the South at a distinct and competitive disadvantage.

Mike Eckert is the former CEO of The Weather Channel and current Vice-Chair of the national Angel Capital Association. The Georgia Public Policy Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (March 22, 2013). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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