– September 13, 2016

Politicians love to talk about small business, but often use the topic for a quick photo op and feel-good story about the economy. However, both major presidential candidates are proposing policies that are highly relevant to small business owners.

Hillary Clinton focuses on “leveling the playing field” between small and large businesses, while Donald Trump advocates policies intended to help businesses regardless of size. A comparison of these proposals highlights an interesting question: How differently should the government treat small and large businesses?

Clinton’s website has a page dedicated to small business, including those photo ops, but also a sizable list of policy proposals. Virtually all of the proposals focus on the premise that small businesses face greater or different challenges related to taxation, financing and regulation than their large counterparts. Perhaps the proposal of Clinton’s that could have the most impact is a new standard tax deduction for small businesses. In addition, she proposes “easing the burdens” on local banks to lend to small businesses, and simplifying the licensing and regulation of small businesses at all levels of government. While the site offers many specific ideas, it is largely devoid of numbers: We aren’t told how large Clinton’s tax deduction will be, or the size of any potential bank subsidy for small business lending.

Donald Trump’s website makes no specific mention of small business, but puts forward some policies aimed at business in general. Trump proposes limiting taxes to 15 percent for all businesses, lower than the current average rate of 19.8 percent paid by small business, according to the Small Business Administration. He proposes a review and prioritization of regulations by every federal agency, as well as trade reform. While his tax plan offers a more specific number than Clinton’s, it is harder to predict how the end results of regulatory review and trade reform would help small businesses.

So is it more effective to have policies specifically targeted to small businesses, or to simply target business in general? There are clear differences in the structures of small and large firms that put small firms at a disadvantage when dealing with complex tax or regulatory rules, or the search for financing. Large businesses are typically big organizations with many specialized employees, often including lawyers and accountants who can negotiate the processes discussed above. Therefore, the marginal cost of one more regulation or change to the tax code is likely lower for large firms. They can also obtain financing from equity and debt markets usually out of reach to small businesses. Helping small businesses clear these hurdles may make them more competitive.

At the same time, one might argue that more differences in regulatory treatment of small and large businesses inevitably leads to more red tape, and simple policies aimed at all businesses are ultimately more efficient.

Both candidates’ proposals also carry risks for small businesses. Clinton’s proposals will require a good deal more specificity and negotiation, carrying the risk that they could get lost in the sea of photo ops and feel-good talk about Main Street. Under Trump, small businesses risk getting lost in the shuffle entirely, carrying the possibility that the playing field may tip even further toward large firms. Despite these unanswered questions, the clear differences in approach between the candidates will give small business owners plenty of food for thought on Election Day.

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Max Gulker

Max Gulker

Max Gulker is an economist and writer who joined AIER in 2015. His research focuses on two main areas: policy and technology. On the policy side, Gulker looks at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker is interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy. Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxgAIER.

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