Democratic presidential candidate Kamala Harris campaigned in New Hampshire on Wednesday, proposing policies to boost the creation of small businesses across the country, while also calling for scaling back President Biden’s proposed capital gains tax increase.
Vice President Harris’ big announcement was to expand the small business tax credit tenfold from $5,000 to $50,000, offsetting the average $40,000 it costs to start a business. Under the new proposal, startups could spread the credit over several years or defer the $50,000 credit until their company is profitable, lowering the tax burden for entrepreneurs in the early stages of starting their companies.
“As president, one of my top priorities will be strengthening America’s small businesses,” Harris said. “So that starts with helping more small businesses and innovators get started.”
In addition to increasing the number of new businesses, Harris said she wants to make it easier for existing businesses to expand by cutting “red tape that can make it unnecessarily difficult for small businesses to start and grow.”
Regarding the capital gains tax cut, Harris said, “When governments encourage investment, it leads to broad-based economic growth, creates jobs and strengthens our economy.”
The proposals the vice president outlined in New Hampshire were the most specific she’s offered to date on small business growth. During her speech, she said she set a goal of attracting 25 million new small business applications during her first term (if elected president), 6 million more than the 19 million recorded so far under the Biden administration.
While these proposals may be beneficial for entrepreneurs, there are other policies that could be more beneficial for small business owners.
Keeping inflation in checkCost structures make it very difficult for small businesses to turn a profit: rent is high, the cost of raw materials and inventory has increased significantly over the past two years, and the state continues to raise the minimum wage, which hits small businesses harder than larger businesses.
For example, the minimum wage in California will increase from $16 to $16.50 per hour on January 1, 2025. This increase applies to all employers, regardless of size. For example, restaurants are already struggling to pay increasing wages year after year, and in reality, there is a limit to how much people are willing to pay for a cup of coffee. Restaurateurs are struggling with a decline in the average bill as inflation discourages more people from ordering $15 or $16 cocktails a glass. The problem for restaurateurs is that many rely on increasing alcohol prices to make a profit. People still like to eat out, so if they don’t want to eat out less often, they will try to lower costs when ordering food.
Creating a graduated tax system that is favorable for small and medium-sized enterprisesProgressives often point to corporate profits and say they want big corporations to pay their “fair share.” But not all corporations make huge profits. In August, Vice President Harris proposed raising the corporate tax rate from 21% to 28%. That’s a big increase, and while many businesses could handle it, without a graduated approach or exemptions to this tax hike, small businesses would be hit hard.
Grow the economy the right way, not just by giving more government moneyWhen governments borrow to finance defense spending (through bonds or printing money), create government positions, or fund social programs, the money supply increases. More money in the economy allows consumers and businesses to spend more, but it also reduces the value of money, ultimately leading to inflation. Over the past two years, the Fed has tightened monetary policy by raising interest rates, in part to counteract increased government spending. The central bank is considering lowering interest rates soon, but the effect could be offset if the government continues spending.
Further digitizing SBA lendingIncreased digitization of small business lending has streamlined the loan process, reduced risk for lenders, and expanded access to capital to women-, minority-, and immigrant-owned businesses. The Vice President has said he wants to dramatically expand entrepreneurship, and making capital available quickly and efficiently will help him achieve that goal.
Deregulation of the banking industryBanking regulations such as Basel III impose high capital requirements on banks, forcing them to hold a certain percentage of their assets in safer, more liquid forms such as cash or government securities. Lending to small businesses is often considered riskier, so banks are required to hold larger capital reserves. This has a negative impact on lending to small businesses. In addition, regulations often require banks to implement more rigorous reporting, risk management, and compliance processes. These requirements increase operational costs for banks. This is why reducing the regulatory burden can lead to increased lending.
Kamala Harris is expected to continue refining her economic plan as Election Day approaches. Her policies have been in flux as she was a late starter as the Democratic candidate, but we can expect her to refine and solidify her positions in the coming weeks after her first in-person debate with former President Trump on September 10 next week.
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