In an election year, tax policy is important for small business owners, especially here in Nebraska and Omaha. This year is no exception. Many of the cuts introduced by the Tax Cuts and Jobs Act (TCJA) for both individuals and businesses are ready to expire by 2025, making policy a big priority for the incoming administration.
Both former President Donald Trump and Vice President Kamala Harris have proposed tax policies that impact small businesses, though their strategies vary significantly.
Donald Trump’s Tax Policy Proposals
General approach: Trump’s tax policies aim to lower corporate tax rates, reduce regulations on businesses, and preserve the pass-through tax deduction established under the TCJA. This favors larger companies and businesses that operate as C corporations.
- Corporate tax rate reduction:
Under the TCJA of 2017, Trump’s administration lowered the corporate tax rate from 35% to 21%, benefiting many large businesses and C corporations. He aims to maintain or even shrink this, reducing tax liabilities and increasing cash flow for businesses filing as C corporations. - Pass-through entity tax deduction:
Trump supports continuing the pass-through tax deduction created by the TCJA, which allows small businesses structured as pass-through entities (like S corporations, partnerships, and sole proprietorships) to deduct up to 20% of qualified business income. This lowers the effective tax rate for small businesses, helping them retain more earnings. - Capital investment incentives:
Trump backs policies that promote capital investment by offering accelerated depreciation schedules for business assets. These incentives allow businesses to quickly recoup the costs of investments, which is better if they are looking to upgrade or expand. - Regulatory and tax code simplification:
During his presidency, Trump reduced regulatory barriers and simplified the tax code, leading to lower compliance costs and making tax obligations easier to manage. These were generally viewed as beneficial for small business owners who want to focus on running their operations rather than navigating complex regulations. - Increased tariffs:
A significant part of Trump’s policy is imposing higher tariffs. While Trump argued that foreign manufacturers, especially from China, would bear these costs, research shows that American businesses and consumers end up paying higher prices.
Kamala Harris’s Tax Policy Proposals
General overview: Harris’s tax plans focus on increasing taxes on large corporations, expanding deductions for small businesses, and offering more tax credits for small business growth.
- New $50,000 tax deduction for startups:
Harris proposed a substantial increase in the tax deduction for new small businesses, raising it from $5,000 to $50,000. This initiative is part of the broader plan to support entrepreneurship and encourage the growth of new small businesses. - Increase in corporate tax rates:
Harris advocates for raising the corporate tax rate to 28%, closer to pre-TCJA levels. This increase would mainly affect large corporations, and smaller businesses would likely not see a direct impact unless they file as C corporations. Higher corporate taxes on larger firms could help level the playing field for small businesses by reducing the competitive advantage of larger companies. - Expansion of the pass-through deduction:
Harris has expressed support for expanding the pass-through tax deduction. Her plan would increase the current 20% deduction for pass-through entities and offer additional relief for smaller businesses, with the goal to boost reinvestment and growth. - Increased support for small business financing:
Harris also plans to enhance access to financing for small businesses, proposing greater access to loans and grants through programs like the Small Business Administration (SBA). This would include expanding funding for community banks and credit unions that cater to small businesses, giving them more funds to grow. - Enhanced tax credits for workforce development and sustainability:
Harris is advocating for expanded tax credits for small businesses that invest in employee training, sustainability initiatives, and technology. These credits would encourage small businesses to adopt strategies that could offer long-term advantages.
Impact on the Deficit
Both candidates’ tax policies are projected to increase the national deficit, but the extent differs significantly. According to projections from Penn Wharton’s Budget Model, Harris’s proposals would increase the deficit by $1.2 trillion over the next decade, while Trump’s plans would result in a larger increase of $5.8 trillion over the same period.
