Harris Introduces Small Business Tax Break Plan

Democratic presidential nominee, Vice President Kamala Harris speaks during a campaign event at IBEW Local Union #5 in Pittsburgh on Sept. 2, 2024. Michael M. Santiago/Getty Images

Vice President Kamala Harris on Sept. 4 unveiled a new proposal for small business tax breaks as the Democratic candidate looks to flesh out her economic platform ahead of a debate with former President Donald Trump next week.

The plan, released during a campaign speech on Sept. 4 in Portsmouth, New Hampshire, includes an increase in the tax deduction for startup costs to $50,000 from $5,000. The campaign aims to attract 25 million new small business applications in a potential first term—an increase from the 19 million under the Biden administration as of mid-August of this year.

Experts who spoke to The Epoch Times said that while the plan could help spur economic activity, it would add billions to the deficit in the next decade. The proposals would ultimately require congressional approval.

In a response to the plan, the Trump campaign also said it would drive up the national debt. Trump has campaigned on cuts to the corporate tax rate and an extension to his 2017 tax cuts, which are due to expire at the end of 2025.

Harris described the plan as part of her efforts to build an “opportunity economy.”

“On average, it costs about $40,000 to start a new business in America. That is a great financial barrier for a lot of folks, and it can hold entrepreneurs back. And the current tax deduction for a startup is just $5,000,” Harris said, making the case for a higher tax deduction.

Garrett Watson, senior policy analyst at the Tax Foundation, said the proposal may cost the federal government approximately $20 billion over 10 years.

The size of the plan, he told The Epoch Times, is smaller than some of the other plans the vice president has proposed, and it reflects her interest in continuing the growth in startup business activity seen in recent years, notably since the COVID-19 pandemic.

This new policy pitch adds to Harris’s previous economic agenda relayed in August, which included a Child Tax Credit plan, a federal ban on price gouging, first-time buyer housing subsidies, and a plan to build 3 million affordable homes by the end of her first term. She also hopes to expand on President Joe Biden’s efforts to bring down key prescription drug costs.

Harris’s new proposal for small businesses allows new startups to spread the deduction over several years or defer claiming the $50,000 tax deduction until the company becomes profitable.

Under the current law, companies can deduct up to $5,000 of their qualifying start-up costs, which include expenses such as market research, legal fees, incorporation fees, and advertising costs. However, the deduction starts to phase out if business expenses exceed a certain amount.

“The deduction is phased out so if you have, say, $20,000 of startup costs, you actually don’t get any deduction at all,” Michael Carlos Best, assistant professor of economics at Columbia University, told The Epoch Times. “Raising the threshold to $50,000 will allow a lot more businesses with startup costs in the $10,000 to $80,000 range to benefit.”

Watson said: “I don’t think it’s an unreasonable plan. It could be a more bipartisan topic. There has been, of course, some interest in promoting greater entrepreneurship and startups in Congress on a bipartisan basis.”

However, he said Harris’s bid to entrepreneurs and small businesses contrasts with her plans for higher corporate tax rates.

“You’re simply increasing taxes with one hand and decreasing them with the other, which just doesn’t seem to make a lot of sense,” EJ Antoni, a research fellow at The Heritage Foundation, told The Epoch Times, citing her plans to raise marginal tax rates for personal income and taxes on investments, which might affect small business owners.

“The motivation here that’s cited is an increase in the number of small business applications. I’m not sure why that’s a concern.”

He said that while the United States has witnessed a record number of business applications, very few of those applications have gotten off the ground and turned into a business startup, noting challenges faced by entrepreneurs such as inflation and regulatory burdens.

A Bipartisan Issue

Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, doesn’t expect strong political opposition to this proposal, except maybe because of concerns about the cost.

He concurred with the Tax Foundation’s estimate that the plan could cost nearly $20 billion.

It’s beneficial for small businesses, which is generally popular, and it’s structured in a way that doesn’t permanently reduce the federal government’s revenue base, Goldwein told The Epoch Times.

“It’s letting them deduct more of their startup expenses earlier,” he said. “I don’t think this is going to have a large ongoing cost.”

Many of the changes Harris is proposing in her economic plan would likely require congressional approval.

Although the small business plan is expected to have a relatively low cost, Harris’s other plans are anticipated to have significant long-term costs for the government.

Her previous economic package was projected to add $1.7 trillion to the deficit over the next decade before interest, according to the CFRB’s estimates. However, the think tank noted that her plan to increase the corporate tax rate to 28 percent from 21 percent would raise roughly $1 trillion over the next decade.

During her speech in New Hampshire, Harris also discussed efforts to make it easier for businesses to operate and file taxes. She wants to ensure that one-third of federal contract dollars goes to small businesses.

Her plan includes increased investment in community development financial institutions that support low-income Americans and communities that traditional lenders often overlook.

During her speech, Harris said that her plan “will expand access to venture capital” for small businesses.

Harris also previously suggested extending subsidies under the Affordable Care Act to increase coverage for more Americans. She proposed expanding the current $35 monthly cap on out-of-pocket insulin costs and a $2,000 annual limit on out-of-pocket prescription drug costs for not just Medicare patients but all Americans. As part of the Inflation Reduction Act, the $2,000 cap for Medicare Part D drug costs takes effect in January 2025.

Harris also proposed ending federal income taxes on tips, following a similar promise made by former President Donald Trump on the campaign trail earlier this year.

‘Working on Republican Turf’

The Trump campaign issued a statement in response to Harris’s new plans.

“If Kamala wanted to help small businesses, why hasn’t she done it during her four years as vice president?” the campaign stated. “Why has Kamala proudly supported Bidenomics, which has caused historic inflation and record-high energy costs for small businesses, minimizing their profit margins and threatening their livelihood?”

Aaron Dusso, political science professor at Indiana University-Purdue University Indianapolis, said politically it makes sense for Harris to focus on small businesses because that term has a positive connotation in the electorate.

However, Dusso noted that this is an issue that is primarily championed by Republicans and that triggering the word “business” in the voters’ minds will likely lead them to Republicans.

Voters generally associate Republicans as being better at handling the economy and small businesses, he told The Epoch Times.

“By focusing on small businesses, Harris is working on Republican turf. Working on the other team’s turf can be a double-edged sword for a politician,” Dusso said. “This doesn’t mean you never talk about the other party’s ‘owned’ issues. It just means that you shouldn’t make them a central focus.”