Democratic presidential candidate Kamala Harris unveiled a plan to expand tax deductions for small businesses and streamline their tax filing process.
Speaking in New Hampshire September 4, Harris argued that increasing the amount small businesses can deduct for start-up costs from $5,000 to $50,000 would help fuel a boom in economic activity.
“It’s essentially a tax cut for starting a small business,” Harris said, adding that the proposal is part of a wider goal to have 25 million new small business applications in her first term.
Harris also said she wanted to “cut red tape” small businesses face in the return filing process by enacting a standard deduction similar to that for individual income taxes.
“Remember the 1040EZ? That kind of idea,” Harris said, referring to a simplified income tax return that was consolidated into the Form 1040 as part of the Tax Cuts and Jobs Act.
In response, the National Small Business Association struck a cautiously optimistic tone, applauding the proposal to increase the deduction for start-up costs — which they say would bolster available capital for small businesses — but expressing concern over the period businesses would have to take advantage of the provision.
“The devil is in the details,” the association’s Todd McCracken said in an email to Tax Notes. “Most small businesses don’t garner significant profits in their first, or even second or third years — and so the length of time within which the deduction can be claimed is critical.”
McCracken expressed support for the campaign’s promise to allow businesses a few years to become profitable before taking the deduction, and suggested “a minimum of 5 to 10 years.”
McCracken also warned that the impending expiration of several TCJA provisions in 2025 — especially the 20 percent qualified business income deduction for passthroughs and the income tax rate cuts for individuals — are weighing on small businesses.
Former President Trump, Harris’s Republican presidential opponent, called her plan a “sham” and argued that her vote to pass the American Rescue Plan Act, which lowered the Form 1099-K reporting threshold for taxpayers to report income from online marketplaces, added “needless paperwork” for small businesses.
Divergence From Biden
Harris also announced a pivot away from one of President Biden’s signature tax proposals.
Harris said she would pursue an increase in the total capital gains rate on individuals making more than $1 million from its current level of 23.8 percent to 33 percent.
The figure is significantly lower than the 44.6 percent total rate Biden proposed in his recent budget and marks the first significant divergence between the president and Harris in terms of tax policy.
“We will tax capital gains at a rate that rewards investments in America’s innovators, founders, and small businesses,” Harris said.