The other day, Vice President and presidential nominee Kamala Harris proposed a $50,000 tax deduction for small business startup expenses. Wondering what this means for our economy, job market, and the millions of small business owners across America? Read on.
Too Long; Didn’t Read
- Kamala Harris has proposed increasing the startup tax deduction from $5,000 to $50,000
- The $50,000 number comes from the average cost to start a business in the US, which lies around $40,000
- Ideally, this increased tax deduction would allow tens of millions of people to start new businesses that can then employ others
- Some critics worry about the cost of a widespread deduction of this magnitude
Can Businesses Write-Off Startup Costs?
As of September 9, 2024, businesses can deduct $5,000 of startup costs in the first year of business. This includes things like legal fees, hiring fees, and marketing.
Understanding the Small Business Tax Deduction Proposal
What Is the $50,000 Tax Deduction?
On September 4, 2024, during a speech in New Hampshire, Harris proposed increasing the allowable deduction for small business startup expenses from the current $5,000 to $50,000.
Key features of the proposal include:
- An increase in the deductible amount from $5,000 to $50,000
- Flexibility for new businesses to allocate the deduction across multiple years
- Option to claim the full $50,000 deduction once the business turns a profit
Why Raise The Tax Deduction So High?
The average cost of starting a business is about $40,000. By increasing 10x to $50,000, that will in theory help cover all startup expenses.
Who Would Benefit from Harris’ Proposal?
The proposed tax deduction is primarily targeted at new small businesses and could potentially impact millions of entrepreneurs. Harris mentioned that she would like to see 25 million new small business applications in her first term.
Potential Impacts on the Country
Economic Stimulation
Positive Outlook
Proponents argue that this substantial increase in tax deductions could:
- Encourage more people to start businesses
- Provide new businesses with more capital to reinvest in growth
- Stimulate job creation in the small business sector
Potential Concerns
Some critics are ”confused” by this offering since Harris has proposed raising other taxes such as corporate tax and capital gains tax. They argue offering a $50,000 tax deduction while simultaneously increasing taxes across the board will counteract one another.
Job Market Effects
Positive Outlook
- Increased startup activity could lead to more job opportunities
- This could be the extra push needed for individuals who have always wanted to be self-employed, but needed the extra push
Potential Concerns
- The quality and sustainability of jobs created by new businesses
- Long-term impact on tax revenue and its effect on other government programs
- Some Republicans say that Harris should prioritize helping existing small businesses
Small Business Landscape
This proposal could reshape the small business landscape by:
- Lowering financial barriers to entry for new businesses
- Providing startups with more financial flexibility in their crucial early years
- Potentially increasing competition in various industries
Looking At This Proposal From Two Lenses
Republican Viewpoints
Since much of rural America is right-leaning, there are many small town patrons who know the importance of small businesses in their communities and may look at this positively.
However, other Republicans may:
- Worry about how government spending is being prioritized
- Feel that Harris should first help existing struggling small businesses
Democratic Viewpoints
Many Democrats are in support of the proposal as part of Harris’ broader “opportunity economy” plan, which includes:
- Expanding the child tax credit
- Introducing tax cuts for middle-class Americans
- Implementing up to $25,000 in down payment aid for first-time homebuyers
Broader Economic Context
This proposal is part of Vice President Harris’ larger economic agenda, which ultimately focuses on supporting the middle class. In the case of this proposal, by making filing taxes “cheaper and easier” for businesses.
Final Thoughts
Kamala Harris’ proposal for a $50,000 tax deduction for small business startup expenses represents a significant attempt to support entrepreneurship in America. While the potential benefits are clear – increased economic activity, job creation, and support for new businesses – the proposal also raises important questions about implementation, fiscal responsibility, and long-term economic impacts.
Regardless of political affiliation, the goal of supporting small businesses and stimulating economic growth is shared across party lines. The discussion around this proposal offers an opportunity for bipartisan collaboration to refine and improve policies that can benefit small business owners and the broader economy.
Ultimately, the success of this policy will depend on careful implementation, ongoing evaluation, and a willingness to adjust based on real-world outcomes. As the political process unfolds, it will be crucial for policymakers on both sides of the aisle to work together to find effective, fiscally responsible ways to nurture and grow the small business sector that forms the backbone of the American economy.
