With election day around the corner, small and medium-sized businesses (SMBs) in the US should brace themselves for potential significant policy changes that could affect their business. The upcoming election between former President Donald Trump and Vice President Kamala Harris showcases two very different approaches to business regulation, taxation, and labor policy. Here’s a detailed look at what SMBs could expect to see regarding the business landscape post-election.
The Potential Impact on Businesses if Trump is Elected
If elected, Donald Trump’s policies are expected to impact businesses significantly, particularly through tax changes, regulatory rollbacks, and shifts in energy policy.
Below are key areas likely to influence the business environment.
Tax Policies
Trump has proposed making key components of the Tax Cuts and Jobs Act (TCJA) permanent, including lower corporate tax rates and bonus depreciation, which would allow companies to deduct investment expenses more quickly. He also intends to cut the corporate tax rate further to 15% from the current 21% to stimulate investment and reduce business tax burdens. The TCJA provisions alone could reduce tax burdens and increase cash flow, especially beneficial for SMBs facing narrower profit margins than larger corporations.
Additionally, Trump appears to be exploring new tax incentives, such as increased deductions for capital investments, to encourage domestic production and investment, which could offer SMBs substantial savings and access to financing for growth initiatives. However, the decrease in federal revenue from these tax cuts could lead to cuts in infrastructure, potentially shifting such costs back on businesses.
Environmental and Energy Regulations
Trump has stated his intention to reverse climate-related regulations, such as requirements for electric vehicle production and renewable energy initiatives. Instead, his plan focuses on expanding fossil fuel production, including approving more oil and gas projects and increasing domestic energy production. Such changes could reduce costs for traditional energy-intensive industries but challenge the renewable energy sector.
Deregulation and Bureaucratic Changes
Trump has expressed a desire to “dismantle the administrative state,” which includes loosening business regulations and altering civil service rules to facilitate more business-friendly policies. This could lower compliance costs for SMBs, offering them more flexibility in operations and reducing administrative overheads. However, some analysts caution that this could also remove worker protections and environmental safeguards, which could have indirect effects on consumer demand and corporate reputation.
Trade and Tariff Policies
Trump’s previous tariffs on China and certain other trade partners indicate a possible return to tariffs or trade restrictions aimed at protecting U.S. industries. While a 20% baseline tariff on imports, and even higher tariffs for Chinese goods, could benefit U.S.-based manufacturers by reducing foreign competition, these tariffs might increase costs for SMBs reliant on imported goods or components. Increased prices for materials and goods could result in higher operational costs, impacting businesses that cannot easily pass these costs onto consumers. For small and medium-sized businesses, this may mean higher expenses, potentially squeezing their profitability if they heavily depend on foreign supply chains.
Labor and Immigration Policies
Trump’s proposed immigration policies could have substantial effects on U.S. businesses, particularly those reliant on immigrant labor in sectors like agriculture, construction, and technology. His plans include strict limitations on both legal and illegal immigration, with promises of large-scale deportations and restrictions on employment-based visas. This could reduce the available labor pool, leading to potential labor shortages and increased costs in low-wage industries. Additionally, Trump’s proposals to end birthright citizenship and implement restrictive visa policies may affect workforce stability and make it harder for businesses to attract international talent.
The Potential Impact on Businesses if Harris is Elected
If elected, Kamala Harris is likely to advance a range of policies that would impact SMBs, many of which expand on current Biden administration initiatives but with more assertive targets and additional reforms.
Policies Relating Directly to SMBs
Kamala Harris’ plans include a significant expansion of tax incentives for startup costs, proposing an increase in deductible startup expenses from $5,000 to $50,000. This would allow new entrepreneurs to deduct more of their initial costs, making it easier for them to establish and sustain businesses in the critical early phases.
Additionally, Harris has pledged to streamline and simplify the lending process for small businesses by revising rules for SBA-backed loans. These changes aim to reduce red tape and increase the flexibility of SBA’s “504” loan program, which helps businesses refinance debt for land, buildings, and equipment. By expanding this program, Harris hopes to allow more small businesses to qualify for low-cost loans and refinancing options, potentially saving them thousands in loan payments and enhancing their financial stability.
Harris also emphasizes a commitment to reducing regulatory burdens that impact small businesses, which could encourage local and state governments to adopt similar measures.
Labor Policies
Harris supports policies that would increase wages, like raising the federal minimum wage and eliminating the sub-minimum wage for tipped workers and disabled employees. She has also proposed expanding paid family leave and ending federal job requirements for four-year college degrees where feasible, which could affect hiring and wage costs across sectors, particularly for lower-wage and entry-level positions.
Tax Reforms Targeting High-Income Filers and Investors
On taxation, Harris has suggested increasing the capital gains tax rate and the net investment income tax for high-income individuals. These proposals could affect small businesses’ access to investment capital. Investors, especially high-net-worth individuals and venture capitalists who are essential for startup funding and small business growth, might face reduced post-tax returns on investments. This could discourage them from investing in higher-risk ventures like small businesses, where returns often come in the form of long-term capital gains.
Harris’s plan would likely involve raising the long-term capital gains tax rate for high-income earners (those making over $1 million annually), which could increase the effective tax burden on gains derived from investing in small businesses and startups. Higher capital gains taxes could make small business investments less attractive compared to other options with potentially lower risk or better after-tax returns. Additionally, increasing the net investment income tax for the top income brackets may compound this effect, as it would further reduce the after-tax returns investors receive on dividends, interest, and capital gains from business investments.
This shift might lead some investors to move capital into assets less affected by these taxes, such as tax-exempt municipal bonds or lower-risk investment vehicles. However, supporters of Harris’s proposals argue that the revenue generated from these tax changes could be redirected toward programs supporting small businesses directly, such as through grants, loans, and incentives aimed at reducing operating costs for small businesses.
Innovation and Green Economy Initiatives
Harris has introduced plans to invest heavily in clean energy and sustainable practices. She plans to establish a $40 billion innovation fund aimed at developing sustainable housing and infrastructure projects, which would promote green energy development, increase demand for clean energy solutions, and create new business opportunities in renewable energy sectors.
Preparing for the Next 12 Months — Opportunities and Risks on Both Sides
The outcome of the election will undoubtedly shape the US business environment. Both Trump’s and Harris’s platforms present distinct opportunities and challenges for SMBs.
Key Takeaways
- Trump’s Policies: Overall, Trump’s policies could support SMB growth through reduced taxes and fewer regulations, but they may also introduce challenges, particularly in adapting to potential tariffs, regulatory shifts in the marketplace and immigration limitations.
- Harris’s Policies: In sum, Harris’s policy proposals for small and medium-sized businesses center on expanding tax breaks, increasing financing options, and modernizing regulatory requirements to foster a more accessible and supportive environment for small business owners. These proposals could result in improved access to capital and cost savings for entrepreneurs. However, her proposed labor policies could affect hiring and wage costs and compliance. Also, her tax reforms targeting high income filers and investors could affect small businesses’ access to investment capital.
Regardless of the outcome, it is important to plan ahead. With the right support and preparation, SMBs can ensure that they are able to navigate the complexities ahead.
Now is the time to strategize, anticipate, and act.
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