Kamala Harris is proposing a ten-fold increase in the small business tax deduction for startup costs, a new weapon in her arsenal as she vies with Donald Trump to show voters who can best assuage their anxieties about the economy.
The proposal, outlined by a Harris campaign official on condition of anonymity, would increase the deduction from $5,000 to $50,000. According to the official, that figure will help meet what the campaign says is an average $40,000 cost for starting a small business.
The move is the latest salvo in an escalating tax policy duel between Harris and Trump, the Republican nominee, with high stakes for the American economy. The next president will be primed to overhaul tax policy as Washington prepares to rewrite the code next year.
A series of tax cuts are slated to expire in 2025 and the two candidates are pitching competing budget-busting proposals such as expanded child tax credits and exemptions for tipped wages from federal taxes that could shift tax burdens for the public and come with a hefty cost.
The new proposals come as Harris rolls out a policy agenda a little over a month after she replaced President Joe Biden atop the Democratic ticket and with about two months left until Election Day. The vice president has vowed to make protecting the middle class a centerpiece of her so-called Opportunity Agenda, with measures to protect households from high prices, but critics have assailed the vice president, saying her blueprints have so far come with few specifics.
Similar to other Harris proposals, the small business tax measures revive ideas backed by Biden, other Democrats and even Trump. President Barack Obama in office called on Congress to expand tax breaks for small businesses and to ease regulatory burdens for startups.
25 Million Applications
Harris will unveil her tax proposals for small businesses in a speech Wednesday in New Hampshire. She will set a goal of 25 million new small business applications in the first term of a potential Harris administration – up from a record 19 million so far under Biden, according to the official.
To reach that target, Harris also plans to propose measures to cut red tape for startups, including developing a standard deduction to save small-business owners time when filing their taxes. The Democratic nominee will also call for reducing barriers to occupational licenses that make it harder for workers to ply their trades across state lines or for businesses to expand to other states. And she’ll encourage state and local governments to also ease regulatory obstacles.
Harris also plans to initiate a small business expansion fund to enable community banks to cover interest costs when emerging enterprises are trying to expand, particularly in regions that have historically struggled to get investments. If elected, Harris will also pledge to ensure that one-third of federal contract dollars go to small businesses by expanding opportunities in rural areas and underserved communities.
If Harris becomes president, she will have to contend with small business taxation during her first year in office. Small businesses in many industries are poised to face a tax increase at the end of next year year when a 20% deduction for privately-held, or pass-through, businesses is set to expire.
About 90% of US businesses are organized as pass-throughs, and can range from mom-and-pop convenience stores to private equity funds. The law allows business owners whose income is reported on their personal tax returns to claim up to a 20% write-off on their income.
That tax break was part of Trump’s 2017 tax overhaul, which also included individual tax rate cuts and an expanded child tax credit. Those levy reductions will expire at the end of 2025 if Congress doesn’t renew them.
Trump’s tax cut pledge is a centerpiece of his populist economic agenda and has drawn him support from many business leaders in his third run for the White House. The former president has said he hopes to keep significant tax cuts for both businesses and corporations in place, and has proposed eliminating taxes on tipped wages and Social Security income, as well as an expanded child tax credit.
Harris has said she would support eliminating taxes on tips, but has proposed increasing levies on the wealthy and corporations to help offset the deficit impact of her other proposals.
The economy is one of the defining issues of the 2024 race, with households straining under high prices even as Biden has sought to highlight investments in infrastructure and domestic manufacturing.
Those economic anxieties threaten to undercut Harris’ campaign, with Trump seeking to tie her to Biden’s handling of the economy and the poor marks voters give the sitting president.
Harris has already unveiled measures aimed at providing aid to first-time homebuyers and curbing the cost of rent and groceries.