Kamala Harris recently unveiled a new economic plan to raise the maximum initial tax deduction for new business startups to $50,000. This increased deduction aims to alleviate the financial burden faced by entrepreneurs in their first year of business. Research conducted by Shopify indicates that these costs can reach up to $40,000, encompassing expenses like product manufacturing, shipping, payroll, and advertising.

While the discussion regarding Harris’s proposal may focus on the effectiveness of the tax deduction, it might be more beneficial to inquire about the origin of the $40,000 estimate. Is there a way for the government to lower this sum? Cities and states are beginning to address this issue, recognizing the escalating expenses and complexities associated with obtaining licenses, permits, and inspections for new businesses.

The Cities Work project, which assists cities in simplifying the business startup process, discovered that opening a small restaurant in various cities across the U.S. could cost over $5,000 solely in permit and license fees. This amount spikes to over $20,000 in places like San Francisco. The process for establishing a barbershop entails around 55 regulatory steps across eight government agencies, assuming no errors or repetitive paperwork.

Research by Shopify revealed that nearly 25% of small startups find license and permit fees unexpectedly high due to overlapping requirements between different levels of government regulation. Entrepreneurs often struggle to forecast or allocate funds for these unanticipated costs, as many cities lack transparency regarding the entire process, causing some business owners to abandon midway due to accumulating expenses or delays.

As one entrepreneur from Kansas City expressed, many businesses cease operation after encountering challenges at City Hall. Fortunately, there are policy remedies that local and state authorities can put in place to address these issues without waiting for federal tax legislation.

In Washington, D.C., the BEST Act slashed redundant and excessive business license categories, reduced high fees, and waived fees for new businesses earning less than $10,000 in their initial year. However, progress in other areas can be sluggish. In Maryland, a bipartisan bill proposing a complete elimination of first-year filing fees for select businesses failed to advance beyond committee, similarly to a Nevada bill aimed at exempting veteran-owned businesses from licensing fees for their first five years.

Although implementing reforms may result in short-term revenue loss from reduced fees, the long-term benefits, including increased entrepreneurship, economic growth, and higher tax revenue, make it a worthwhile sacrifice. Previous reforms, such as those in Chicago led by Mayor Rahm Emanuel, resulted in a significant reduction in licensing types and cost-saving measures, ultimately enhancing the business environment.

Ultimately, city officials possess the authority to ease the process of starting small businesses in America today. Simplifying outdated, expensive, and redundant regulatory hurdles is the initial step towards supporting the nation’s entrepreneurs, especially those launching micro or small-scale businesses.