WASHINGTON, D.C. – U.S. Senator Martin Heinrich (D-N.M.), Ranking Member of the Joint Economic Committee, delivered the following statement at today’s hearing entitled, “Breaking Through the Regulatory Barrier: What Red Tape Means for the Innovation Economy.” In his remarks, Senator Heinrich emphasized that access to capital is the chief barrier stifling innovation, and that Republican efforts to roll back regulations and consumer protections hurt innovation and small businesses.

Below are his remarks as prepared for delivery:

“Mr. Chairman, I’m pleased that we are again looking at the question of how to accelerate the pace of innovation.

We come at this issue from different perspectives. My Republican colleagues seem to believe that regulations are holding back innovation.

Yet, dialing back the clock on rules designed to protect consumers doesn’t help small businesses innovate and grow.

Small firms, like small cities and towns, need fair rules of play. They need rules that give consumers and entrepreneurs a fair shake.

And rules that help improve access to capital.

When I talk with small businesses across New Mexico, the thing they are most concerned about is limited access to capital.

That’s why I asked Ms. Milano to testify today about the difficulties small firms encounter gaining access to capital to launch and grow their businesses.

I believe her testimony will shed additional light on this important issue.

What’s slowing innovation are barriers to capital and misguided tax policies.

Let’s start with taxes. Republicans just passed a tax law that lavishes huge tax benefits on large corporations. At the same time, the new law makes the tax code more complex for small firms.

Corporations are using their tax savings to buy back their stock, not to invest in plants or workers. So far, companies have announced more than $400 billion in share buybacks, including $100 billion from one company alone.

Those buybacks will do little to boost worker wages or spur innovation.

Instead, we should be focused on supporting the next generation of companies, ensuring that those who want to start or expand a business have the tools and access to capital they need. 

New businesses are the lifeblood of the economy. They drive innovation, productivity, and jobs. Yet, new business formation has been declining for decades.

And the startups we do see are increasingly concentrated geographically. Half of the increase in business establishments between 2010 and 2014 was in 20 counties. 

Fully sixty percent of counties saw a net decline in establishments during this period.

Increasingly, banks are unwilling to take the risk on small loans that have high fixed costs and lower profit margins.

More than half of small businesses seek loans of less than $100,000. Yet, these loans have fallen from 33 percent of bank lending in 2008 to 22 percent in 2016. 

While it’s hard for many small firms to access the funds they need to start or grow their businesses, it’s especially challenging for women-owned and minority-owned firms.

These firms have less wealth to draw from to launch their businesses and also face higher borrowing costs.

Community Development Financial Institutions (or CDFIs) help to fill the void, often making loans to those who can’t get them from commercial banks.

Yet, the Trump administration has proposed effectively eliminating the Treasury Department’s CDFI Fund. 

We’ve got to tackle the access to capital challenge from all sides.

It starts with encouraging venture funds to identify and support promising startups beyond the urban hubs on the coasts.  SBA’s Small Business Investment Company Early Stage Initiative helps to broaden the base of venture funding nationally.

We need to support small business lending through SBA’s capital programs, the CDFI Fund, and other channels.

And we need to work toward greater lending transparency in the private sector. 

A growing number of online lenders are using technology and access to data to attempt to fill gaps in small business lending.

But, we need to ensure these loans are safe. 

We should look to the financial protections we extend to consumers as a good blueprint for how we can and should protect small business borrowers using these new financial products.

While access to capital is critical, there are other factors that are important to enabling innovation. These include federally funded R&D and access to quality K-12 education and affordable post-secondary options. 

Investing in human capital while promoting greater access to financial capital will enable the United States to continue to lead in the 21st Century economy.

I look forward to our witnesses’ testimony.”

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For more information, please contact Latoya Veal at Latoya_Veal@jec.senate.gov or 202-224-0379.