Vice President Kamala Harris announced her plan to increase the current $5,000 tax deduction for small businesses and their startup expenses to $50,000 during a campaign speech in New Hampshire on Wednesday.
CNBC reports that the proposal will allow small businesses to spread the deduction out over the course of several years, or “delay claiming the $50,000 tax deduction until the company turned a profit.”
However, Garrett Watson, a senior policy analyst at the Tax Foundation, warns that this plan could cost taxpayers approximately $20 billion over the next 10 years. In an email to Entrepreneur, Watson says that this figure is a “best rough guess” as he hasn’t formally scored the proposal, based on the impact of a similar which increased startup business costs deduction from $5,000 to $10,000 in 2010.
“[It] scored at costing $230 million over ten years,” Watson wrote. “This was enacted for 2010 only under the Small Business Job Creation Act of 2010 and the lower limit of $5,000 for qualified expenses went back into effect the following year.”
“Drawing it out from there,” he continues, “this proposal from Vice President Harris may cost upward of $20 billion over ten years after adjusting for the higher deduction and the change in the budget window.”
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The cost would be revenue not otherwise collected under current law from 2025 to 2034, he says, noting, “However, this would be a timing change for when the government collects revenue rather than an outright tax cut, as it’s dealing with the timing of when deductions are taken.”
Thomas Savage, an economist at the American Institute for Economic Research, is dubious about the proposal.
“It’s a gimmick to try to get small businesses excited,” he said on a recent episode of Morning Wire. He believes that, like most tax credits, “people will pay money to the government and they have to jump through hurdles either to apply for a lower tax bill or get a little bit of that money back.”
Savage says “the elephant in the room” is that the Trump tax cuts are set to expire next year. “Some of the most effective ones have really been the personal income taxes and the business income taxes, as well as exemptions for research and development. That’s really what’s going to help businesses grow,” he says.
Speaking to the New York Post about the $50,000 deduction proposal, Adam Michel, the director of the libertarian Cato Institute’s tax policy studies, said, “I’m glad to see Harris acknowledge that cutting taxes helps businesses,” adding, “The opposite is also true: raising taxes hurts businesses, big and small.”
