Understanding Kamala Harris’s Proposal for Small Business Tax Deduction

Kamala Harris, the current Vice President of the United States, has been advocating for significant tax benefits for new small businesses. Under her proposal, new startups could receive a tax deduction of up to $50,000, aiming to increase the number of small business applications by 25 million. However, her critics argue that this proposal is grounded more in political rhetoric than practical help for entrepreneurs. Let’s delve deeper into the details of this proposal and analyze its potential impact.

Tax Deduction vs. Handouts

Harris is not calling for ‘handouts’ but rather a tax deduction that could be claimed by small business owners. This means that for tax purposes, the expenses of new business startups would be increased by $50,000. The formula for profit calculation in businesses is straightforward: Profit Revenue - Expenses. For startups, particularly those in their initial years, the profit is often negative due to startup costs and operational inefficiencies.

Read more: Start-up Costs Affect Profitability in Early Stage Businesses

Due to these losses, the businesses are not liable for taxes in the first place, as they are not generating a profit that would necessitate tax payment. Hence, a tax deduction or increase in expenses for tax purposes does not translate into a tangible reduction in tax liability for these businesses.

Potential Impact on Small Businesses

While the tax deduction might sound like a significant benefit, many small business owners can find themselves in circumstances where it is not actually helpful. For startups that frequently operate at a loss, the proposed deduction may not make a considerable difference. However, for businesses with existing operations and existing revenue levels, this additional deduction could be more meaningful.

It’s important to note that this proposal, if passed, could surge the number of new business applications. According to the Biden administration’s records, there were around 19 million new small business applications, and Harris aims to increase this number by 50% to 25 million. This target is ambitious and should be evaluated critically to determine its feasibility and potential impact on the economy.

Virtue Signaling or Practical Policy?

Critics of Harris’s proposal argue that it is more a case of virtue signaling than a genuine attempt to aid small businesses. The real issue for many entrepreneurs is the cost of doing business, which includes tax compliance, regulatory burdens, and access to capital. Instead of focusing on a tax deduction, a payroll tax holiday for a few years could reduce the government-imposed costs and provide more immediate relief to small businesses.

Payroll tax holiday would provide actual relief to businesses by reducing the cost of labor, which can be a substantial expense for startups. This type of policy would have a direct and immediate impact, making it more likely that small business owners would benefit from the measure.

Targeting Specific Groups: E-Visa Entrepreneurs

A key component of Harris’s proposal includes a $10,000 gift to new immigrant entrepreneurs, primarily from India, who use E-Visa investor visas to invest in motels. This targeted approach is seen by some as a strategic move to increase the number of small businesses owned by immigrants. However, it's also criticized for being a form of political virtue signaling rather than a genuine effort to support small businesses.

While her mother is from India, there is no evidence suggesting that this was a driving factor in the decision. Instead, it might be aimed at appeasing certain voter groups and showing favor towards a particular demographic.

Conclusion: Evaluating the Proposal

Whether Kamala Harris’s proposal for a small business tax deduction is a practical solution or a political tactic is up for debate. Critics argue that it is more of a false promise aimed at increasing the number of business applications rather than providing substantial support to startups. Real help would come from policies that directly address the financial burden and regulatory challenges entrepreneurs face.

Instead of a tax deduction that may not be applicable to many startups, offering a substantial reduction in payroll taxes or making it easier for businesses to access capital would have a more immediate and tangible impact on the success of small businesses.