As the 2024 presidential election approaches, you may be wondering how a Trump presidency might impact your small business differently from a Harris presidency. The economic policies of each candidate could have profound impacts on small businesses, influencing everything from tax burdens to international trade. In this article, we will explore three key areas where these impacts could be most pronounced:
- Tax reforms
- The USMCA (aka NAFTA 2.0), and
- Regulation
Tax Reforms for Small Businesses
The Tax Cuts and Jobs Act (TCJA) of 2017, a cornerstone of Trump’s economic policy during his first term, significantly altered the tax landscape for businesses. It lowered the corporate tax rate from 35% to 21% and introduced a 20% deduction for pass-through businesses (QBI), which includes many (though not all) small business owners. However, many provisions of the TCJA are set to expire in 2025, leaving small businesses in a state of uncertainty.
A Trump presidency would likely push for an extension or even a permanent adoption of these tax cuts. That means a lot of extra money in your pocket if your small business is profitable. If your business is unprofitable, like a startup business, the extension of tax cuts make no material difference.
On the other hand, Harris has broadcast a different approach focused on increasing taxes for wealthy and corporations. She has signaled support for the Biden tax proposal which includes:
- Higher corporate income tax rates
- Taxing unrealized gains
- Increasing capital gains tax rate
- Raising the highest marginal tax rate
These reforms would have significant negative impact on profitable businesses and entrepreneurs hoping to sell their businesses.
Renegotiation of the USMCA
The United States-Mexico-Canada Agreement (USMCA) was another significant achievement of the Trump administration, replacing the North American Free Trade Agreement (NAFTA) in 2020. The USMCA has been generally favorable for industries such as manufacturing and agriculture, which have seen benefits from stricter rules of origin and better access to Canadian and Mexican markets.
The USMCA is up for renegotiation in 2025. Whoever is elected president of the USA will instruct delegates how to negotiate against Sheinbaum, the new president of Mexico, and Trudeau, prime minister of Canada.
If Trump were to win the presidency again, it’s likely that he would either leave the USMCA as it is or push for even stricter trade terms. This could continue to benefit industries like automotive and steel, which rely heavily on North American supply chains. Small businesses in these sectors might see stable or improved conditions under a continued Trump administration, with more favorable terms for exporting goods and services.
Conversely, a Harris administration might seek to renegotiate the USMCA with a focus on labor and environmental standards. Harris has been vocal about the need for fair trade agreements that protect workers’ rights and address climate change. Small businesses in industries like manufacturing might face new regulations or standards that could increase operational costs. However, businesses involved in clean energy or technology could benefit from new trade terms that prioritize environmental sustainability, opening up new markets and opportunities.
Industries such as agriculture might experience mixed outcomes under a Harris renegotiation. While some agricultural sectors might benefit from improved labor standards, others could face challenges due to increased environmental regulations or changes in export terms. Small businesses in these industries will need to be agile, adapting to potentially shifting trade dynamics.
Regulatory Impacts
Regulation is another area where a Trump versus Harris presidency could lead to vastly different outcomes for small businesses. During his previous term, Trump emphasized deregulation, particularly in industries like energy, finance, and healthcare. He also famously cut funding to the IRS, leading to delays in processing tax returns, supporting accountants and filers, and a drop in enforcement.
Trump’s administration argued that rolling back regulations would reduce the burden on businesses and promote economic growth. The actual impact of regulatory reduction is more complex. Changes in regulation, whether increases or reductions, create one-time administrative burdens on small businesses who must educate themselves on the changes and adjust businesses processes. Regulations also create barriers to entry, giving established businesses an advantage over new entrants.
If Trump returns to office, we can expect a continuation of his deregulation philosophy. Small businesses in industries such as fossil fuels, real estate, and finance might benefit from fewer regulatory hurdles, lower compliance costs, and a more business-friendly environment. However, this approach could also lead to increased competition, with larger companies potentially taking advantage of relaxed regulations at the expense of smaller enterprises.
In contrast, a Harris administration would likely focus on re-regulation, with particular focus on “price gouging” for food, housing, and other essential expenses. Harris has not announced any specific actions, so estimating the small business impact is difficult. Subsidies to incentivize housing construction could be a boom for some small businesses. But regulations like price controls could be extremely harmful.
Outside of price gouging, Harris has historically focused on areas such as environmental protection, consumer rights, and worker safety. She has been an advocate for stronger regulations to address climate change, income inequality, and corporate accountability. Small businesses in the clean energy sector, for instance, might benefit from new incentives and government support. However, businesses in industries like oil and gas, or those heavily reliant on gig economy labor, could face increased scrutiny and higher compliance costs.
Conclusion
The potential differences between a Trump and Harris presidency present a stark contrast in how small businesses might navigate the coming years. A Trump administration would likely prioritize tax cuts, deregulation, and a continuation of current trade policies, creating an environment where certain industries, particularly traditional manufacturing, energy, and finance, could thrive. However, this approach might also lead to increased competition and potential long-term risks due to environmental and economic volatility.
In contrast, a Harris administration would likely emphasize equitable growth, sustainability, and strong regulatory oversight. This could lead to increased costs and compliance challenges for some small businesses but also open up new opportunities in emerging sectors like clean energy and technology.
Ultimately, the impact of either presidency on small businesses will depend on the specific industry, the business’s adaptability, and how effectively they can navigate the changing landscape. As the election draws nearer, small business owners should carefully consider these potential scenarios to prepare for the economic and regulatory environment that lies ahead.
