New bill would offer tax credits to women-owned businesses
Sen. Ron Wyden, D-Oregon., the ranking Democrat on the Senate Finance Committee, introduced legislation Wednesday to create two new tax incentives to help small businesses owned by women to hire and grow and get access to capital.
The PROGRESS (Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success) Act would provide a new “First Employee Credit” aimed at stimulating business growth and job creation. The credit would be equal to 25 percent of W-2 wages reported and would be claimed annually, up to $10,000 in a single tax year, with a lifetime limit of $40,000. As many start-up businesses don’t turn a profit in their early years, the credit would be creditable against the business’ payroll tax liability. Certain businesses that haven’t reported their full-time equivalent W-2 wages in a previous year would be eligible for the credit. 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, known as an “Investor Credit” or “Investment Credit,” aims to encourage third-party capital investment in small businesses. A credit of 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 certain businesses would be able to use the 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. individual(s) that each earn $100,000 or less per year ($200,000 in the case of joint filers). A detailed summary of the bill is available here.
Wyden’s office noted that despite significant growth in the number of women-owned businesses, their share of business revenues hasn’t changed in two decades and remains around 4 percent. Male entrepreneurs are much more likely to get bank loans and other sources of capital for their businesses in the first three years. The gap is even greater for third-party sources of funding such as venture capital. In 2018, only 2.3 percent of venture capital funding went to companies founded solely by women. Latinx and black women have raised only 0.32 percent and 0.0006 percent of venture capital funding over the past decade.
“Women business owners, particularly women of color, are underestimated, underrepresented and undercapitalized,” Wyden said in a statement. “Existing tax incentives do not do nearly enough to help women-owned small businesses. Our bill would diminish these gaps and help women-owned businesses hire and grow.”
Several advocacy groups praised the proposed legislation. “Women-owned firms represent 36 percent of all U.S. firms, but they only produce 4 percent of U.S. revenues,” said Margot Dorfman, CEO of the U.S. Women’s Chamber of Commerce, in a statement. “Firms owned by women of color face even greater challenges. While women of color own 28 percent of women-owned firms, they secure only 14 percent of all women-owned revenues. The obstacles to growth facing women business owners are dramatically impacting their business revenues and profits. Women business owners need access to capital for their businesses to reach their full potential. We commend Senator Wyden’s efforts towards economic equity for women entrepreneurs. This is the kind of tax policy we need for women-owned businesses to grow and thrive.”
“Access to capital continues to be a problem for entrepreneurs and small-business owners contributing to both a 40-year low in start-ups and the suppression of job creation in very small businesses,” said Frank Knapp, co-chair of Businesses for Responsible Tax Reform and president and CEO of the South Carolina Small Business Chamber of Commerce, in a statement. “Since almost all net new jobs come from businesses under five years old with less than five employees, the future of our economy is threatened. This bill to promote investment in very small businesses and the hiring of a first employee will put our tax policy squarely on the side of our small-business owners and entrepreneurs.”