Policy

Clinton v. Trump: How Will Small Businesses Fare?

A Guidant Financial poll of 1,000 small business owners conducted in mid-May indicates small business owners continue their year-long preference for Donald Trump.

Forty-three percent supported Trump, 19 percent Clinton and 11 percent Sanders.1  While Clinton has said “she wants to be the small business president,” proposing several small business friendly programs and tax incentives, Trump’s regulatory and tax proposals, private sector experience and overall economic messaging continue to win the lion’s share of small business allegiance.

One the one hand, Clinton has been criticized by Trump and the media for a lack of big ideas in her overall economic proposal.  On the other, Clinton’s polls have improved following her  two recent speeches on the economy,  although Trump continues to be viewed by more Americans as better able to manage the economy.  A comparison of the candidates’ small business agendas suggests that while Trump has put forward the bolder program, Clinton’s policies are more focused and less costly.

Trump

The centerpiece of Trump’s small business agenda is his proposal to cap the income tax rate on business income at 15 percent for corporations and pass-through entities alike.  (For a detailed analysis of the Trump tax proposals see this FEI Daily article.)

The Tax Policy Center2 estimates this proposal alone would add nearly a trillion dollars to private company coffers over the next 10 years.  The tax revenues lost are offset by the elimination or limitation of certain tax expenditures worth roughly $1.2 trillion to all individual taxpayers over the same period. In addition, Trump wants to abolish the estate and gift taxes for another $223 billion in tax savings over 10 years.

Trump also promises to reduce the regulatory burden on businesses (estimated by the campaign to be $1.75 trillion annually) by securing passage of the Regulations from the Executive in Need of Scrutiny (REINS) Act.  The bill, passed in the House last August but not in the Senate, “would require any executive branch rule or regulation with an annual economic impact of $100 million or more to come before Congress for an up-or-down vote before being enacted.” The bill specifically addresses new regulations.

In addition, the presumptive Republican candidate has indicated he would repeal the ACA (Obamacare) on the first day of his administration (assuming Congress had passed legislation enabling him to do so).  This would save individuals about $190 billion from eliminating the 3.8 percent net investment surtax. He also promises to repeal most of Dodd-Frank.

Trump’s positions on trade and China, as well as immigration (he wants to abolish the H1-B program, in addition to his wall and mass deportation proposals), have received mixed reviews from small business owners.  However, his opposition to increasing the federal minimum wage has strong backing from the business community.

 

Clinton

In contrast, Clinton’s small business programs are modest and more targeted.  The daughter of a small businessman, Clinton focuses her proposals in two practical areas.  First, she would provide tax credits for businesses investing in community development and infrastructure, and for those who hire apprentices or share profits with employees.

She would double funding for three existing programs: the New Markets Tax Credits (about $3.5 billion in 2014), the Community Development Financial Institutions Fund ($182 million in 2015) and the State Business Credit Initiative, established in 2010 to provide $1.5 billion to state-run lending initiatives.3  She also proposes to eliminate capital gains tax on small business stock held for more than five years, and to simplify small business tax filing. (For a detailed analysis of Clinton’s tax proposals, see this FEI article.)

Second, she would spend $25 billion to help women and minority-owned businesses in under-served areas, and to offer training, mentoring and incubators to 50,000 entrepreneurs.

On the regulatory side, Clinton would inaugurate a nationwide review of existing small business regulations at the federal, state and local levels, reducing costly compliance requirements for small businesses while removing regulatory barriers to business start-ups.  She also supports continued funding for the Export-Import Bank’s small business programs.

On the negative side of the ledger, she would enact a 4 percent surcharge on AGI in excess of $5 million ($2.5 million for married couples filing separately), and impose a minimum tax of 30 percent on filers with AGI greater than $1 million (i.e., the Buffett Rule), costing roughly $245 billion in additional tax liability over 10 years. She would increase the capital gains tax, based on the holding period of the capital (costing $84 billion through 2026).  Clinton proposes to restore the 2009 estate and gift tax parameters and reform grantor trust and valuation rules, adding $160 billion in additional federal tax revenue over 10 years.  She also intends to cap all itemized deductions (except charitable) at a tax value of 28 percent and a 10-year taxpayer cost of $406 billion.4

In addition, she supports a $12 federal minimum wage, as well as protecting and strengthening the ACA.  She is a proponent of comprehensive immigration reform, including a path to citizenship.  She intends to build on Dodd-Frank.  In supporting and then opposing the TPP, she stayed true to a mixed record on trade agreements, e.g. she voted against  two of 10 trade bills while in the Senate.

Economic and Fiscal Implications

The Tax Foundation’s5 analysis suggests Clinton’s tax proposals would cost the economy about 1 percent of 10-year GDP growth and 2.8 percent of 10-year capital investment growth, while Trump’s more ambitious tax proposals would add about 11.5 percent to 10-year GDP growth and 29 percent to 10-year capital investment growth.  The Tax Policy Center estimates the Clinton tax proposals would increase the marginal tax rate on new investment approximately eight-tenths of a percentage point for pass-through entities, while the Trump proposals would decrease the marginal tax rate on new investment by 8 percentage points for pass-throughs.

However, the Tax Foundation also estimates the Clinton proposals would add roughly $498 billion to the 10-year static federal revenues estimate and about $191 billion to the 10-year dynamic federal revenue estimate. In contrast, Trump’s proposals would subtract about $11.9 trillion from the 10-year static federal revenue estimate and $10.1 trillion from the 10-year dynamic federal revenue estimate.

Since both candidates have indicated they intend to defend entitlement programs (Social Security and Medicare), the Trump proposals will require significant cuts from other federal expenditures or substantial increases in GDP growth if deficits are to be restrained.  Until now, he has stated a preference for increasing the federal debt.

 

1 Guidant Financial Blog, “Small Business Owners React to 2016 Presidential Candidates”, May 18, 2016.

2 Tax Policy Center, “An Analysis of Donald Trump’s Tax Plan”, Urban Institute and Brookings Institution, December 22, 2015.

3 Robb Mandlebaum, “Clinton’s Small Business Agenda: Modestly Bigger Government”, Mar 15, 2016.

4 Tax Policy Center, “An Analysis of Hilary Clinton’s Tax Proposals”, Urban Institute and Brookings Institution, March 3, 2016.

5 Tax Foundation, “How do the 2016 Presidential Tax Plans Compare So Far?” Taxfoundation.org.