The post-pandemic period saw an explosion in individual entrepreneurship. According to a Treasury Department report released this week, 71 percent of net new jobs since 2019 came from small businesses (compared to 64 percent after the Great Recession), and new business filings increased by 50 percent in 2024 compared to five years ago. More than 19 million businesses have been formed since Biden’s inauguration, and these aren’t just sole proprietorships or fly-by-night operations. The subset of applications for companies most likely to hire increased 30 percent since 2019.
You can debate what led to this, but I’d put my money on a change in mindset. I’ve written before about people’s desire to find purpose at work and chart their own path. The technological and logistical barriers to starting e-commerce businesses have also decreased. The pandemic’s zero-interest rate policy helped reduce borrowing costs for businesses, but over the past two years that has changed as interest rates have risen, and people are still starting businesses at solid rates (though more lower than in 2021 and 2022).
More content from David Dayen
I don’t know that I would put lowest tax burdens at the top of the list. But Kamala Harris and her economic team clearly think this is holding back small businesses. In a speech yesterday in New Hampshire, Harris proposed a tenfold increase in the tax deduction for start-up expenses, from $5,000 to $50,000. Therefore, wages for new workers, training, advertising and other expenses before a business is operational can be deducted at a much higher rate.
The rollout included other benefits for small businesses, including simpler occupational licensing rules across state lines and easier tax filing. Harris’ goal is to increase that number of new businesses to 25 million in his first term.
I’m sure no small business owner would look for a larger start-up cost deduction and turn it down; it’s basically free money. It’s not a lot of money, to be clear. A 2018 bill that expanded the deduction to $20,000 (which Donald Trump supported) would cost $2.8 billion over a decade; maybe Harris’ version would be $7 billion. The New York Times he estimated it a little higher, at $20 billion. That’s still not much.
I’m less sure any small business owner would be clamoring for this. We actually know a lot about what small businesses worry about, because various organizations survey them periodically. And a tax deduction on the back end is not the concern; is access to credit on the front end.
Surveys generally show greater optimism among small business owners about hiring and investment; the survey by the National Federation of Independent Business shows its highest level in two years, mainly due to reduced inflation. The US Chamber of Commerce/MetLife survey is at a record high.
But one drawback has been the tightening of lenders’ small business credit standards for most of President Biden’s tenure. Small businesses often have trouble getting credit because their businesses are simply riskier than large corporations, and the Federal Reserve’s higher interest rates have raised the bar even higher. This has changed a bit in 2024 and is a big reason for optimism. But credit standards are still seen as tight.
If you look at what small business organizations say they really need, like this 2025 agenda from the Main Street Alliance, outside of a banal plea for tax fairness, discussions about the tax code are virtually nonexistent. The Main Street Alliance wants Congress to approve paid family and medical leave and investments in child care, maintain enhanced health insurance subsidies in the Affordable Care Act exchanges, and support antitrust enforcement to ensure fair competition for their small businesses. And local economic development, including access to equity financing, is also on the list, critical to “ensuring that new entrepreneurs have the resources they need to start and scale their businesses.”
The bottom line is this: You can’t really enjoy the benefits of a start-up tax deduction if you can’t get the money to start a business in the first place.
To be fair, Harris’ plan also calls for a “small business expansion fund” that would cover interest costs for small businesses expanding into areas with low levels of investment. (An expansion fund is nice, but it doesn’t help unless businesses can actually get off the ground.) He also announced support for more funding for community development financial institutions (CDFIs), which typically lend to neglected or neglected communities. CDFI support would be critical, because lending standards, not necessarily interest costs, appear to be the main obstacle. But this would apparently only apply to small businesses in rural America and “underserved” communities; there are people across America who need a broader base of lenders willing to give small businesses a chance.
The phrase “small business” is sometimes enchanted with totemic meaning in Washington, revered in such a way that it already earns them exemptions from many regulations and tax benefits. Sole proprietors already enjoy a large (and largely unearned) tax break for pass-through companies that was part of Trump’s tax cuts. Perhaps another tax cut is warranted; maybe not
But aside from these benefits and exemptions, the idea that the oppressive hand of the IRS continues to make it nearly impossible to start a business is contradicted by the incredible statistics about business formation in the post-pandemic era. And if Harris’s small business idea correlates with the tech entrepreneurs who bankroll his campaign, this focus could end up being dangerous, especially if it’s just a means to allow startups to go Big Tech, earn riches, and consolidate their power. industry
I have already said that, unlike Barack Obama’s supposed “team of rivals”, where everyone shared the same neoliberal premises about the economy and the world, Harris seems to be building a real one. She has attacked corporate price gouging and has not relented despite pushback from economists, even publishing a new ad on the issue this week. He offers nice tricks like eliminating tip taxes that would deplete the revenue needed to pass other parts of his agenda, such as care economy measures. And he proposed things like this tax deduction, which seem disconnected from the problem that small businesses face. Even in the field of housing, an issue in which he leaned more strongly, he simultaneously defended supply and demand policies. (I don’t necessarily resent it; there’s room for both. But it speaks to this dynamic.)
Campaign white papers do not necessarily correspond to government agendas. With Harris, the true direction of that agenda continues to shift.
#Small #businesses #arent #tax #cuts