A group of Senate Democrats introduced legislation Tuesday to give small businesses owned by women and people of color greater access to capital through tax incentives.
Senate Finance Committee chair Ron Wyden, D-Oregon, joined with Senate Small Business Committee chair Ben Cardin, D-Maryland, Sen. Maggie Hassan, D-New Hampshire, and Catherine Cortez Masto, D-Nevada, to unveil the bill, known as the Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act. It includes two new tax credits: a First Employee Credit and an Investor Credit.
Congressional Democrats have made one of their priorities the reduction of income inequality, and the bill is part of that effort. The Biden administration is also focusing on that goal, unveiling an American Jobs Plan last month that would fund infrastructure improvements and social programs with an increase in the corporate tax rate to 28 percent. The administration is also expected to introduce an American Families Plan that would extend the expanded Child Tax Credit that was included as part of its American Rescue Plan beyond the end of the year and provide other tax credits for families to provide childcare, pre-K education, paid leave and other benefits, in exchange for an increase in the top individual tax rate to 39.6 percent and taxing capital gains as ordinary income.
The Senate Finance Committee held a hearing Tuesday on inequality in the U.S. Tax Code in and Wyden said he and his fellow Democrats would be introducing the PROGRESS Act that day. Inequality isn’t just about race, it’s also about gender,” he said in his opening statement. “Women business owners, particularly women of color, are underrepresented, undercapitalized and underappreciated. The share of business revenues that go to women-owned businesses hasn’t budged in 20 years. It’s stuck at 4 percent. Along with Senator Cortez Masto and Senator Hassan, Senator Cardin and I are introducing the PROGRESS Act that will help to increase that figure. Our bill is all about promoting investment in women- and minority-owned businesses and helping them grow and hire more workers.”
One of the tax credits in the bill, the First Employee Credit, would provide a credit equal to 25 percent of W-2 wages reported that could be claimed annually, up to $10,000 in a single tax year, with a lifetime limit of $40,000. The tax credit would be creditable against a business’s payroll tax liability because many businesses don’t turn a profit in their early years. Some businesses that haven’t reported full-time equivalent W-2 wages in a previous year would be eligible for the credit. The eligible businesses would have to be majority owned by U.S. individuals who each earn $100,000 or less per year (or $200,000 in the case of joint filers).
The other new tax credit in the bill, the Investor Credit, aims to encourage third-party capital investment in small businesses. The credit would be for up to 50 percent of a qualified debt or equity investment could be claimed, up to $10,000 in a single tax year, with a lifetime limit of $50,000. Investors who fund some of the businesses could use the tax credit to boost their rate of return. Eligible businesses would need to have at least one full-time equivalent employee and be majority owned by U.S. individuals who each earn $100,000 or less per year (or $200,000 in the case of joint filers).
“Women and minority-owned businesses have been hit especially hard by the coronavirus pandemic, and it’s crucial that we give these business owners the support they need to get back on their feet,” Cortez Masto said in a statement. “This legislation will provide new tax credits targeting women and people of color who want to hire employees, grow their businesses, and jumpstart our economy. We owe it to them to level the playing field and support their entrepreneurial spirit.”
The legislation aims to level the playing field for entrepreneurs, and its proponents say male entrepreneurs, on average, start with nearly twice as much capital as women entrepreneurs. The disparities are bigger when it comes to accessing third-party capital. In 2018, only 2.3 percent of venture capital funding went to companies founded only by women. Even though Hispanic and Black women make up 50 percent of all women-owned firms, they raised only 0.32 percent and 0.0006 percent of venture capital funding in the past decade.
“The bill is a critical step forward for using targeted tax policy to help small businesses hire their first employee and attract capital — particularly now as new data shows surges in pandemic start-ups, “ said Caroline Bruckner, a tax professor on the faculty of American University Kogod School of Business and managing director of the Kogod Tax Policy Center, in a statement. “This will be chiefly useful to women business owners, 99 percent of which are small businesses and that research shows struggle to access capital on equal footing. By specifically targeting tax incentives to finance firms with gross revenues below $100,000, the bill addresses existing financing inequities that will help women business owners attract capital, which is a long-overdue boost to help these firms grow and scale.”
The bill has gained early support from some small business groups, including the Main Street Alliance and the Small Business Majority.
