Vice President Kamala Harris has proposed a significant increase in the standard tax deduction for small business startup costs, from the current $5,000 to $50,000, as part of her broader economic agenda if she is elected president in November. Economists are examining the potential impact of this proposal on the U.S. economy.
The proposed change, which Harris described as a “tax cut for starting a small business,” aims to reduce barriers to entrepreneurship. A recent analysis by the Tax Foundation suggests that this adjustment would reduce federal revenue by approximately $24.5 billion over the next decade, potentially fostering some economic growth.
Analysts at the Tax Foundation highlighted that while the economic impacts are uncertain, the increase in the deduction could stimulate business investment and economic dynamism if businesses can more effectively recover startup costs. However, broader components of Harris’s “Opportunity Agenda” might counteract these potential benefits.
Erica York, senior economist at the Tax Foundation, noted that while the small business tax deduction increase may have a slightly positive economic effect on its own, it is part of a larger plan that includes higher marginal tax rates on saving and investment. These accompanying proposals could diminish any positive impacts from the startup deduction.
The Tax Foundation’s report indicates that Harris’s agenda, which includes raising top tax rates among the highest in the developed world, might result in more economic drawbacks than gains. One of Harris’s major proposals is to increase the corporate tax rate to 28% from the current 21%, a policy she previously supported raising even higher during her 2020 presidential campaign.
The Harris campaign advocates for these measures as a means to put money back into the pockets of working individuals and ensure that wealthy corporations and individuals contribute fairly to the economy.
Despite these intentions, the Tax Foundation’s analysis projects that Harris’s overall tax plan would increase federal taxes by $4.1 trillion between 2025 and 2034. This could lead to a 2% reduction in long-term GDP, a 1.2% decrease in wages, and the loss of 786,000 jobs over that period.
Furthermore, the report warns that the economic damage from Harris’s proposed tax increases could severely limit efforts to address the emerging U.S. debt crisis. While Harris’s plan would slightly reduce the debt-to-GDP ratio from the expected 201% under current law to 200%, the actual improvement might be minimal when accounting for reduced tax revenues and a smaller economy.
Contributions to this report were made by FOX Business’s Eric Revell and FOX News’s Adam Schemmel.
