With a second Trump Administration set to take office on January 20, 2025, U.S. small business owners are wondering what changes lie ahead. Every transition of presidential administration brings shifts in policies, priorities, and economic strategies. Understanding these potential impacts is critical for small business owners to adapt and thrive in the future. Here, we explore eight key areas where an incoming administration may reshape the small business landscape.
1. Tax Policies
One of the most immediate concerns for the american people is changes to tax policies. The incoming administration has signaled intentions to adjust corporate tax rates and provide tax relief to middle-class Americans. Likewise, small businesses operating as pass-through entities, such as sole proprietorships or LLCs, may see shifts in how their income is taxed.
During his prior administration, Trump introduced major changes through the Tax Cuts and Jobs Act (TCJA). This act aimed to reduce tax rates for individuals and corporations. While it intended to stimulate economic growth by putting more money into people's pockets, its impacts varied greatly depending on income levels, family size, and location.
Summary of Key Policies
Trump highlighted the following tax policies during his campaign. As these proposals develop, businesses should stay informed to understand their implications on their finances:
- Extension of 2017 Tax Cuts: The 2017 Tax Cuts and Jobs Act (TCJA) introduced temporary provisions set to expire at the end of 2025. The incoming administration aims to extend or make permanent many of these provisions, impacting individual and corporate tax rates.
- Reduction in Corporate Tax Rate: A proposal to lower the corporate income tax rate from 21% to 20% is on the table. Potential further reductions to 15% are possible for corporations manufacturing their products domestically. This reduction is intended to incentivize U.S. production and bolster the U.S. manufacturing sector.
- Implementation of Universal Tariffs: The incoming administration plans to impose a universal 20% tariff on all imported goods, with a significant increase to 60% for imports from China. While the policy aims to protect domestic industries, experts warn it could lead to increased costs for consumers. They also worry over potential trade tensions.
- Potential Global Tax Conflicts: Trump’s proposed tariffs and tax policies may lead to international tax disputes, particularly with countries implementing additional levies on U.S. multinationals. Financial experts warn of possible economic conflicts arising from these measures.
- Impact on High-Income Earners: Analyses indicate that making the TCJA tax cuts permanent would disproportionately benefit higher-income individuals, with significant reductions for the top 0.1% of earners. This raises concerns about increasing income inequality.
- IRS Adjustments for 2025: The IRS has announced inflation adjustments for tax provisions in 2025, including increases in standard deductions, alternative minimum tax exemptions, and earned income tax credits. These are changes that will impact a taxpayers' liabilities and should be factored into financial planning.
Key Considerations & Summary:
- Potential Adjustments: The new administration may phase out certain provisions like bonus depreciation or qualified business income deductions.
- Impact on Pass-Through Entities: Small businesses may be significantly impacted based on how pass-through entities are taxed.
- Long-Term Effects: While some argue that tax cuts encourage investment and job creation, others believe they disproportionately benefit corporations and high-income individuals. Researchers at the Institute on Taxation and Economic Policy (ITEP) surveyed and published corporate financial report findings for the first year that the TCJA was in effect. They found that 379 profitable Fortune 500 companies paid an average effective tax rate of one-half what large corporations paid for a decade. ITEP also found that 91, or nearly one-quarter, of major corporations paid no federal income tax on their U.S. income in 2018 and 2019 (prior to the pandemic).
2. Access to Capital
Access to capital is vital for small businesses to grow. The incoming administration has discussed more funding for Small Business Administration (SBA) programs, potentially expanding loan options and grants. More funding could mean more opportunities for entrepreneurs to get capital, though Trump has not offered overt plans.
Key Considerations:
- Increased Funding: More resources allocated to SBA programs can provide easier access to loans and grants. In the first two years of his first administration, Trump increased SBA lending.
- Focus on Underserved Communities: Generally, SBA funding prioritizes initiatives from minority-owned and women-owned businesses.
- Evolution of PPP Programs: With the economy being the number one voting item for the U.S. constituency, some small business owners expect the resurgence of the PPP Program. Experts like Raj Tulshan also warn that the “irrational exuberance” for grant money acquired by SMEs during the 2020 PPP disbursement is not likely to occur again.
3. Healthcare Policies
Healthcare costs remain a significant concern for small business owners and their employees. The incoming administration’s healthcare reforms may make healthcare less affordable for small business owners, in particular.
Key Considerations:
- Reversal of Previous Mandates: Possible reversal of loosening ACA mandates might require adjustments in employer-sponsored insurance plans.
- Affordability: Trump campaigned on a “loose concept of a [healthcare] plan” that focuses on improving healthcare costs through market competition, deregulation, and enhanced flexibility for states and individuals.
- Antitrust: Healthcare M&A is expected to increase dramatically in a new Trump administration. By rolling back Biden-era regulations, some investment bankers in the healthcare sector “expect at least a few deals that rise above $10 billion” in the immediate future. This is a major change from 2023-2024 when antitrust regulation paused any dealmaking above $5B.
4. Workforce Development and Labor Laws
Investments in workforce development may provide small businesses with access to a skilled labor pool. However, changes in labor laws could also increase the business’s operational costs.
Key Considerations:
- Overtime Rules: The administration may revisit overtime eligibility criteria, potentially limiting the number of workers entitled to overtime pay.
- Minimum Wage: Federal minimum wage increases are unlikely; however, state and local jurisdictions may continue to implement their own adjustments
- Worker Protections: Emphasis on strengthening worker protections might require adjustments in compensation structures.
- Employment-Based Visas: Small businesses should expect stricter regulations and possible reductions in visa allocations, impacting the hiring of foreign talent.
- Roll back of DEI initiatives: DEI efforts face increased scrutiny and potential restrictions, particularly for federal contractors.
5. Regulatory Environment
The regulatory environment can either support or hinder small business operations. A new administration often brings shifts in regulatory priorities across industries. Trump is generally seen as pro-business, with deregulatory policies and stances. His administration (or Trump 2.0) will likely make industry-friendly changes in a number of areas, including supervision, capital and liquidity requirements, and digital assets.
Although banking and financial issues were not a central debate in the 2024 election, they will be more relevant as new leadership takes over the White House, both chambers of Congress and federal financial regulatory agencies. The pro-banking and pro-crypto administration will probably endorse an environment open to bank mergers, innovation in financial technology, and digital assets (such as crypto).
Key Considerations:
- Industry-Specific Regulations: Sectors like clean energy, technology, and healthcare might see increased regulations while other industries experience deregulation. Trump has said he will roll back ESG initiatives.
- Artificial Intelligence (AI): Trump says he plans to revoke President Biden’s 2023 broad-strokes executive order outlining AI policy. The policy promotes development and safeguards against data abuses. The order also details how the government reports foreign involvement with domestic AI activities.
- Compliance Requirements: Staying informed about relevant regulatory changes is crucial for maintaining compliance. A shift towards a more flexible federal regulatory environment may increase business innovation. On the other hand, it may lead to a downturn in safety and compliance standards. State laws are expected to pass at a faster pace, creating a patchwork system of compliance.
6. Support for Digital Transformation
Digital transformation has become essential post-pandemic, with many small businesses needing support to modernize their operations effectively.
Key Considerations:
- Broadband Access Improvements: Investments in digital infrastructure are likely to enhance connectivity.
- Grants or Incentives: Possible introduction of grants or tax incentives for adopting digital tools may modernization efforts.
- Rebrand of CHIPS: The CHIPS and Science Act first enacted by President Biden was intended to shore up domestic tech talent and provide subsidies for semiconductors. While Trump has criticized the act, he will likely continue to keep it intact.
7. Infrastructure Investments
Proposed investments in infrastructure could create new opportunities for construction and manufacturing sectors.
Key Considerations:
- Community-Level Projects: Focused improvements and a deregulatory enviornment may directly benefit small businesses at community levels.
- Supply Chain Enhancements: Better infrastructure may lead to improved market access and efficiency enhancements.
- Production Costs: Some industry experts warn that some of the administration’s proposed policies may trigger higher construction costs. Trump’s proposed tariffs on imported construction goods could raise material prices, which “may lead to a second spell of construction inflation.”
8. Climate and Sustainability Initiatives
Climate change policies will likely be high on the agenda. The implications for small business may vary widely based on their industry’s involvement with sustainability practices. However, climate experts indicate that there will be essentially no climate policy once Trump retakes office. Trump has indicated he will withdraw from the Paris climate agreement and, potentially, the UN Framework Convention on Climate Change. The major concern from climate experts is that U.S. absence from negotiation hampers our ability to address global climate change effectively. U.S. business is effected insofar as we will exempt ourselves from policy actions regarding climate safety and compliance.
Key Considerations:
- Growth Opportunities in Green Tech: Businesses with renewable energy or sustainable products (known as ESG) may find some growth opportunities through government contracts or incentives.
- Regulatory Costs: Companies with higher carbon footprints might face increased costs due to stricter environmental regulations.
- “Green” Industrialization: Some policies introduced under the Biden administration may be harder for Trump to roll back, like the development of new ‘cleantech’. But businesses that benefited from ESG subsidies during the prior administration will probably not see much benefit under the new president.
- Disaster Preparedness: In 2024, the U.S. endured a record 27 weather and climate disasters, each causing over $1 billion in damages. Natural disasters are a major threat to the viability of small businesses, particularly in vulnerable communities. Many small businesses may be directly impacted by disaster through national supply chain disruptions. Other businesses are directly impacted by disaster, and to the tune of $400 billion. Small businesses should have a BCP (business continuity plan) in the unfortunate event of climate-related disaster.
Conclusion
While change can be daunting, it also brings opportunities. By staying informed about policy announcements, engaging with advocacy groups that represent your interests, seeking expert advice when needed and adapting proactively to new market conditions, your small business will be better positioned to grow. Regardless of the administration, Loan Mantra is here to advise on the best financial future for your small business.