[Public Papers of the Presidents of the United States: William J. Clinton (1999, Book I)]
[May 6, 1999]
[Pages 712-715]
[From the U.S. Government Publishing Office www.gpo.gov]
Message to the Congress Reporting on the State of Small Business
May 6, 1999
To the Congress of the United States:
I am pleased to present my fifth annual report on the state of small
business. In 1996, the year covered by this report, more than 23.2
million small business tax returns were filed. A record 842,000 new
small employers opened their doors and new incorporations hit a record
high for the third straight year. Corporate profits, employment
compensation, and proprietorship earnings all increased significantly.
Industries dominated by small firms created an estimated 64 percent of
the 2.5 million new jobs.
Small businesses represent the individual economic efforts of our
Nation's citizens. They are the foundation of the Nation's economic
growth: virtually all of the new jobs, 53 percent of employment, 51
percent of private sector output, and a disproportionate share of
innovations come from small firms. Small businesses are avenues of
opportunity for women and minorities, first employers and trainers of
the young, important employers of elderly workers, and those formerly on
public assistance. The freedom of America's small businesses to
experiment, create, and expand makes them powerhouses in our economic
system.
An Unprecedented Record of Success
Looking back to the 1986 White House Conference on Small Business,
one of the top priorities on the small business agenda was deficit
reduction. Small business capital formation efforts had been undermined
by interest rates driven sky-high by the demand for funds to service the
growing national debt. Today I'm proud to say we've done what was
thought nearly impossible then. This year we have converted the deficit
to a surplus--and the budget deficit is no longer the issue it once was.
And my Administration is committed to continuing the dramatic growth
of the small business sector. We continue to pay close attention to the
perspectives and recommendations of America's small business owners. The
1995 White House Conference on Small Business sent a list of 60
recommendations to my Administration and the Congress--the result of a
year-long series of conferences and a national meeting on the concerns
of small firms. In their 1995 recommendations, the small business
delegates told us they need less onerous regulation, estate tax relief
for family-owned businesses, and still more access to capital to start
and expand their businesses.
On each of these fronts, and on many others, impressive steps have
been taken. I have signed 11 new laws that address many of the
delegates' concerns. In fact, meaningful action has been taken on fully
86 percent of the 1995 White House Conference on Small Business
recommendations.
Easing the Tax Burden
The Taxpayer Relief Act, which I signed in 1997, includes wins for
small businesses and the American economy in the form of landmark tax
reform legislation. The law will provide an estimated $20 billion in tax
relief to small business over the next 10 years. It extends for three
years the exclusion from taxable income of money spent by an employer on
education for an employee. The unified gift and estate tax credit will
increase the amount excluded from taxation on a transferred estate to
$1.3 million for small family-owned businesses.
The new law expands the definition of a home office for the purpose
of deducting expenses to include any home office that is the business'
sole office and used regularly for essential administrative or
management activities.
And capital gains taxes are reduced from 28 percent to 20 percent.
This will help small businesses by encouraging investments in businesses
that reinvest for growth rather than investments in companies that pay
heavy dividends. The law
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also improves the targeted capital gains provisions relating
specifically to small business stocks. Moreover, small corporations are
exempted under the new law from alternative minimum tax calculations.
This provision saves about 2 million businesses from complex and
unnecessary paperwork.
Capital for Small Business Growth
One of the Small Business Administration's (SBA) highest priorities
is to increase small business access to capital and transform the SBA
into a 21st century leading-edge financial institution. The SBA's credit
programs--including the 7(a) business loan guarantee program, the
Section 504 economic development loan program, the microloan program,
the small business investment company program, the disaster loan and
surety bond programs--provide valuable and varied financial assistance
to small businesses of all types. The Small Business Lending Enhancement
Act of 1995 increased the availability of funds for SBA's lending
programs. In the 7(a) program in fiscal year 1997 alone, with
approximately 8,000 bank and nonbank lenders approved to participate,
45,288 loan guarantees valued at $9.5 billion were approved as of
September 1997.
My Administration developed community reinvestment initiatives that
revised bank regulatory policies to encourage lending to smaller firms.
When combined with lower interest rates, this led to a sizable increase
in commercial and industrial lending, particularly to small businesses.
And in the first year of implementation under the Community Reinvestment
Credit Act, new data were collected on small business loans by
commercial banks. The SBA's Office of Advocacy has been studying and
publishing its results on the small business lending activities of the
Nation's banks.
And the Office of Advocacy launched a nationwide Internet-based
listing service--the Angel Capital Electronic Network (ACE-Net) to
encourage equity investment in small firms. ACE-Net provides information
to angel investors on small dynamic businesses seeking $250,000 to $3
million in equity financing.
Reforming the Regulatory Process
The Small Business Regulatory Enforcement Fairness Act (SBREFA),
fully implemented in 1997, gives small businesses a stronger voice where
it's needed--early in the Federal regulatory development process. The
law provides for regulatory compliance assistance from every Federal
agency and legal remedies where agencies have failed to address small
business concerns in the rulemaking process.
The new process is working. Agencies and businesses are working in
partnership to ensure that small business input is a part of the
rulemaking process. In the summer of 1997, for example, the Occupational
Safety and Health Administration, in conjunction with the SBA's Office
of Advocacy, convened four regional meetings with small firms to discuss
a safety and health program under development.
Small firms are also witnessing more agency compliance assistance
once regulations are in effect. Agencies are routinely providing
compliance guides and lists of telephone numbers and e-mail addresses
for small business assistance.
And the law provides for a national ombudsman and 10 regional
regulatory fairness boards to make it simple for small businesses to
share their ideas, experiences, and concerns about the regulatory
enforcement environment. The ombudsman and boards are addressing many
concerns expressed by small firms in dealing with regulating agencies.
Expanding Technology and Innovation
Initiatives like the Small Business Innovation Research Program, the
Small Business Technology Transfer Program, and the National Institute
of Standards and Technology's Manufacturing Extension Partnership and
Advanced Technology Program were put in place in the 1980s to channel
more Federal funding to small business research and to help small
businesses move ideas from the drawing board to the marketplace.
Clearly, progress has been made; much remains to be done. New Internet-
based initiatives like the Access to Capital Electronic Network and the
U.S Business Advisor are designed to help many more small businesses
make the connections they need to commercialize their innovative
technologies.
Enhancing International Trade and Federal Procurement Opportunities
During my Administration, our Nation has led the way in opening new
markets, with 240 trade agreements that remove foreign barriers to U.S.-
made products. Measures aimed at helping small firms expand into the
global market have included an overhaul of the Government's export
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controls and reinvention of export assistance. These changes have
cleared a path for small businesses to enter the international economy.
To make certain that small companies can do business with the
Government, my Administration and the Congress have streamlined the
Federal procurement process through administrative changes and the
Federal Acquisition Reform Act of 1996. The changes instituted in these
reforms are cost-effective for the Government and are intended to enable
businesses to compete more effectively for Government contracts worth
billions of dollars.
I am pleased that the SBA has instituted a new electronic gateway to
procurement information, the Procurement Marketing and Access Network,
or Pro-Net. This database on small, minority-owned, and women-owned
businesses will serve as a search engine for contracting officers, a
marketing tool for small firms, and a link to procurement opportunities.
The Human Factor
My Administration is moving to anticipate 21st century demands on
our most important resource--our people. As a recent report by the SBA's
Office of Advocacy points out, small businesses employed more people on
public assistance in 1996 than did large businesses. Our Welfare to Work
Partnership has already had positive results--we've moved two million
Americans off welfare two full years ahead of schedule. And we are
enlisting the help of more and more small business people to expand that
record of success.
We want to educate and train a work force that will meet all our
future global competition. For those in the work force or moving into
it, I recently signed legislation that consolidated the tangle of
training programs into a single grant program so that people can move
quickly on their own to better jobs and more secure futures. The
Balanced Budget Act of 1997 encourages employers to provide training for
their employees by excluding income spent on such training from
taxation. The SBA has also increased training opportunities for
businesses by funding new export assistance centers and women's business
centers across the country.
Women have been starting their own businesses at a dramatic rate in
recent years. More than 6 million women-owned proprietorships were in
operation in 1994, a phenomenal 139 percent increase over the 2.5
million that existed in 1980. But it is also women who are most affected
by the lack of adequate child care. The SBA's Office of Advocacy has
found that while small firms value the benefits of child care as much as
large businesses, small businesses have been less likely to offer this
benefit than large firms for a variety of reasons related to cost. The
bottom line is that we've got to raise the quality of child care and
make it more affordable for families. I have proposed tax credits for
businesses that provide child care and a larger child care tax credit
for working families.
I am pleased that so many Americans of all races and nationalities
are asserting their economic power by starting small businesses. This
report documents the growth: the number of businesses owned by
minorities increased from 1.2 million to almost 2 million in the 5-year
period from 1987 to 1992. The Federal Government has a role in widening
the circle of economic opportunity. Programs are in place to ensure that
socially and economically disadvantaged businesses have a fair chance in
the Federal procurement marketplace. The share of Federal contract
dollars won by minority-owned firms has remained at 5.5 percent for two
years running--up from less than 2 percent in 1980. And recently the SBA
and the Vice President announced new small
business lending initiatives directed to the Hispanic and African
American small business communities to give these Americans better
access to the capital they need.
We have been working for the past 5 years to bring the spark of
enterprise to inner city and poor rural areas through community
development banks, commercial loans in poor neighborhoods, and the
cleanup of polluted sites for development. The empowerment zone and
enterprise community program offers significant tax incentives for firms
within the zones, including a 20 percent wage credit and another $20,000
in expensing and tax-exempt facility bonds. Under the leadership of the
Vice President, we want to increase the
number of empowerment zones to give more businesses incentives to move
into these areas.
Future Challenges
America's small business community is both the symbol and the
embodiment of our economic freedom. That is why my Administration has
made concerted efforts to expand small business access to capital,
reform the system of Government regulations to make it more equitable
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for small companies, and expand small business access to new and growing
markets.
This is an important report because it annually reflects our current
knowledge about the dynamic small business economy. Clearly, much is yet
to be learned: existing statistics are not yet current enough to answer
all the questions about how small, minority-owned, and women-owned
businesses are faring in obtaining capital, providing benefits, and
responding to regional growth or downsizing. I continue to encourage
cooperative Government efforts to gather and analyze data that is useful
for Federal policymaking.
I am proud that my Administration is on the leading edge in working
as a partner with the small business community. Our economic future
deserves no less. The job of my Administration, and its pledge to small
business owners, is to listen, to find out what works and to ensure a
healthy environment for small business growth.
William J. Clinton
The White House,
May 6, 1999.