Vice President Kamala Harris announced her plan to increase the current $5,000 tax deduction for small businesses and their start-up expenses to $50,000 during a campaign speech in New Hampshire on Wednesday.
reports CNBC that the proposal would allow small businesses to spread the deduction over several years, or “to delay claiming the $50,000 tax deduction until the company has a profit.”
However, Garrett Watson, a senior policy analyst at Tax Foundationwarns that this plan could cost taxpayers about $20 billion over the next 10 years. In an email to entrepreneur, Watson says that figure is a “best guess” as he has not formally evaluated the proposal, based on the impact of a similar one that increased the start-up business expense deduction from $5,000 to $10,000 in 2010.
“(He) scored at cost 230 million dollars over ten years,” Watson wrote. “That was approved only for 2010 under the Small Business Job Creation Act of 2010, and the $5,000 lower limit on qualified expenses went back into effect the following year.”
“Pulling it out of there,” he continues, “this proposal from Vice President Harris could cost over $20 billion over ten years after adjusting for the higher deductible and the change in the budget window.”
Related: Why the November election is a win for the stock market, no matter who comes out on top
The cost would be revenue not otherwise collected under current law from 2025 to 2034, he says, noting, “However, this would be a change in when the government collects revenue, not a cut in full of taxes, since it has to do with the time when deductions are taken”.
Thomas Savage, an economist in American Institute for Economic Researchis suspicious of the proposition.
“It's a scam to try to excite small businesses,” he said on a recent episode of The morning wire. He believes that, like most tax credits, “people will pay money to the government and they have to jump over hurdles to either apply for a lower tax bill or get some of that money.”
Savage says the “elephant in the room” is that Trump's tax cuts will expire next year. “Some of the most effective have really been personal income taxes and business income taxes, and research and development exemptions. That's really what's going to help businesses grow,” he says.
Talking to New York Post Regarding the $50,000 deduction proposal, Adam Michel, director of tax policy studies at the libertarian Cato Institute, said, “I'm glad to see Harris admit that cutting taxes helps businesses,” adding, “The opposite is also true: tax increases hurt businesses, big and small.”