WASHINGTON, D.C. — To mark Women’s Small Business Month, on Oct. 30 Senate Finance Committee Ranking Member Ron Wyden (D-Oregon) introduced legislation to expand women entrepreneurs’ access to capital.
“Women business owners, particularly women of color, are underestimated, underrepresented and undercapitalized,” Senator Wyden said. “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.”
Despite significant growth in the number of women-owned businesses, their share of business revenues has not changed in 20 years and remains stuck at 4%. Persistent barriers to accessing capital drive this gap. Male entrepreneurs, on average, start their businesses with nearly twice as much capital and are more likely to obtain a bank loan for their business in the first three years.
The gap is even more significant when considering only third-party capital. In 2018, only 2.3% of venture capital funding went to companies founded solely by women. Latinx and black women have raised only 0.32% and 0.0006% of venture capital funding over the past decade.
While existing tax incentives benefit industries where women do not have a high presence, the benefit of certain tax incentives goes toward those with annual incomes far above that of most female entrepreneurs. Data show that less than 12% of women-owned firms have annual receipts in excess of $100,000.
To unlock the growth potential of these small businesses, the Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act would create two new tax incentives, a first employee and investor credit:
The first employee credit would stimulate business growth and job creation. A credit equal to 25% of W-2 wages reported would be claimed annually, up to $10,000 in a single tax year, with a lifetime limit of $40,000. Because many businesses do not turn a profit in their early years, the first employee credit is creditable against the business’ payroll tax liability. Certain businesses that have not reported full-time equivalent W-2 wages in a previous year would be eligible for the credit. Eligible businesses must be majority owned by U.S. individual(s) who each earn $100,000 or less per year ($200,000 in the case of joint filers).
The investment credit would encourage third-party capital investment and allow small businesses to grow and thrive. A credit of up to 50% 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 could use the credit to boost their rate of return. Eligible businesses would be required to have at least one full-time equivalent employee and be majority owned by U.S. individual(s) who each earn $100,000 or less per year ($200,000 in the case of joint filers).
According to John Arensmeyer, founder and CEO of Small Business Majority: “Women entrepreneurs have been breaking the glass ceiling on small business ownership for decades, but unfortunately they continue to lag behind their male counterparts in crucial business indicators like revenue, number of employees and funding. In order to promote a level playing field, we must address inequities in the tax code that are putting women entrepreneurs at a disadvantage. That’s why we strongly support Senator Wyden’s legislation creating two new tax incentives designed to boost the potential of all small businesses, but particularly those owned by women. Policies like these are critical to ensuring women have the tools they need to succeed in business ownership.”