[Congressional Record Volume 141, Number 14 (Tuesday, January 24, 1995)]
[Extensions of Remarks]
[Pages E164-E165]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


  INTRODUCTION OF LEGISLATIVE PACKAGE TO BOOST SMALL BUSINESS GROWTH, 
                     PRODUCTIVITY, AND JOB CREATION

                                 ______


                             HON. RON WYDEN

                               of oregon

                    in the house of representatives

                        Tuesday, January 24, 1995
  Mr. WYDEN. Mr. Speaker, today I am introducing a package of four 
bills to help small businesses fulfill their potential as the engine of 
U.S. economic growth and job creation. This package is designed to 
overcome structural barriers that limit small businesses' ability to 
raise capital, attract and motivate skilled employees, and export to 
fast-growing foreign markets.
  These are three important challenges that face small businesses 
today, but too often these companies are victimized by Government 
indifference. Consequently, literally thousands of promising small 
companies die each year, not because they lack a good product or 
skilled management, but simply because they are too small to have the 
same opportunities for money, workers, and markets that larger 
companies take for granted.
  Mr. Speaker, if the U.S. economy is to continue to grow and create 
jobs, small business will have to be out front. Statistics clearly show 
that, despite the barriers they face, small companies are the key to 
the economy's future. In the 1980's, large companies lost a net 2 
million jobs while small companies created a net 20 million. Moreover, 
in my home State of Oregon, perhaps the most predominantly small 
business State in the country, 98 percent of the businesses employ 
fewer than 100 workers, and the State government projects that fully 70 
percent of the State's job creation in the 1990's will come from those 
small firms.
  Mr. Speaker, the legislative package I am introducing today will give 
small businesses a fair chance to grow and prosper. It will not give 
small companies any special breaks; rather, it will clear away some of 
the structural impediments that prevent them from competing on an equal 
footing.
  These are the four bills in the package:
                 1. the entrepreneurship promotion act

  At some point in its development, nearly every small business faces a 
crisis in finding the capital necessary to finance continued growth. 
Nearly every company gets caught in the awkward position of being too 
large to be financed internally, but not yet large enough to tap the 
public capital markets or adequate bank financing. Capital is the 
lifeblood of every small company, spreading nutrients throughout its 
operations, and without sufficient capital, an otherwise healthy small 
company with a great product line will be doomed to wither away.
  Companies caught in this position frequently turn for help to so-
called angels--venture capitalists willing to invest their own money in 
companies they think have a real chance to succeed. Today, there is 
just not enough venture capital money available for these companies. 
Investing in new firms is risky, and most investors would rather take 
the more predictable returns of blue-chip stocks or Government 
securities than take a flyer on a small company. Moreover, in those 
parks of the country not near a financial center, there is frequently 
not a sufficient mass of potential investors who know the local 
companies well enough to risk an investment.
  Again, in my home State of Oregon, with its fast-growing software, 
computer, environmental, biotech, wood products, and other industries, 
numerous companies that could be global competitors and create 
thousands of jobs are at risk, simply for want of venture capital 
funds.
  It is imperative, Mr. Speaker, to pump more funds into the venture 
capital pipeline and to direct more of those funds to the companies 
that really need them. The Entrepreneurship Promotion Act is designed 
to do that by creating a tax incentive to get more investors involved--
and keep them involved--in starting and growing job-creating small 
businesses.
  This bill would create a tax rollover, similar to the one available 
to homeowners, to enable an investor who sold his stake in a qualified 
small business to reinvest the money in another qualified small 
business and defer paying taxes on the capital gain.
  With this bill, investors would have an incentive to keep their money 
in the productive sector of the economy, rather than simply cashing out 
their investment. Moreover, the bill would target the incentive at 
investments in firms with less than $20 million in annual sales--those 
companies with the fewest financing alternatives and therefore most in 
need of venture funds.
  I am especially grateful to have Mr. Matsui and Mr. Spratt join me in 
sponsoring this initiative today.
           2. the family savings and investors protection act

  A second vital step to increasing the availability of capital to 
small business is to increase the return on investments and thereby 
draw more funds into the investment sector.
  Currently, investors who hold long-term assets get taxed on both the 
real gain in value of their investment and on the gain due solely to 
inflation. When the Government taxes paper profits, not real profits, 
the added tax burden can be so great that investors can actually end up 
paying a higher effective tax on capital gains than even the top income 
tax rate.
  The message this backward tax policy sends to investors is, ``don't 
save, don't invest, just consume.'' That is the opposite of what is 
needed to nurture a healthy, inflation-free environment in which small 
businesses can grow and prosper.
  The Family Savings and Investors Protection Act would index capital 
gains prospectively so that investors would pay taxes only on the real 
gain in their investment and not on the phantom gains due to inflation.
  A recent report by the Institute for Policy Innovation calculated 
that lowering the cost of capital by prospectively indexing capital 
gains would, by the year 2000, increase capital formation in the United 
States by $995 billion and create 260,000 jobs. Reflecting the higher 
economic growth, and resulting tax payments, net Federal revenue would 
increase by over $40 billion.
  Combined with the tax rollover bill, indexing capital gains would 
provide significant relief to those small businesses that have good 
products and good management but are starving to death for lack of 
capital.
  Mr. speaker, capital gains tax policy has been caught in fearsome 
partisan debate for many years but I believe it is time to move beyond 
old divisions and recognize that indexing capital gains is good for 
small business, good for investors, and good for the Federal 
Government.


                 3. the employee partnership reward act

  If Americans are going to enjoy long-term economic growth and more 
well-paying jobs without triggering inflation, it will be vital to 
raise productivity. Without rising productivity levels, long-term 
living standards will stagnate and American jobs will be increasingly 
vulnerable to global competition.
  One proven way to increase productivity at a firm is to put in place 
a performance-based reward plan, in which workers receive direct 
benefits based on their success in achieving certain measurable goals 
for the firm.
  Those goals can vary depending on the priorities of the firm at a 
given time. For example, a young company may want to boost sales or 
market share, a company making major new investments may want to raise 
productivity, and a more mature company may simply want to increase 
profits. All of those goals are valid--the crucial issue is that those 
goals must be communicated clearly to workers and the rewards must be 
tied directly to the firm's performance relative to those goals.
  These types of plans come under many different names--profit sharing, 
gain sharing, performance pay, and so on--but they all share the key 
characteristic that employees have a stake in the success of their 
firms and 
[[Page E165]] that they will share in that success with managers and 
investors.
  The results where such reward plans have been put into place are 
dramatic. One comprehensive study found that the average productivity 
improvement in firms that implemented such plans was 7.4 percent--
significantly higher than recent economywide productivity growth rates 
of 1 to 3 percent. Moreover, in Japan, where about 25 percent of a 
worker's pay is tied to the performance of the company, fully 93 
percent of the workers feel they benefit from an increase in the 
company's productivity, compared to just 9 percent in the United 
States.
  Performance-based reward plans also help make labor costs more 
flexible. This flexibility encourages firms to create more jobs, 
because the marginal cost of hiring an additional worker is less. 
Moreover, layoffs are less likely because when a firm goes through a 
bad spell and cash is short, its fixed labor costs are lower, as well.
  One great example of this benefit is a company called Lincoln 
Electric, a Cleveland-based manufacturer of welding machines and 
motors. This company suffered a 40-percent decline in revenues during 
the 1981-83 recession, yet it laid no one off, and has not done so 
since the early 1940's. And, in Japan, the unemployment rate has stayed 
around 3 percent through the recent recession--about half the level in 
the United States during the recovery.
  The Employee Partnership Reward Act would provide firms and workers 
with tax incentives to implement performance-based reward plans. Firms 
would be able to deduct 110 percent of their payments to workers under 
such a plan, while workers would receive a tax credit of $100-$500, 
depending on how much of their salary came from payments under the 
plan.
  It is entirely appropriate for the Federal Government to encourage 
such plans through tax incentives because increased productivity and 
new job creation are good for the whole economy.
  Today, the Federal Government offers billions of dollars of tax 
incentives for deferred pension plans, which help people save for 
retirement but have been shown to have little effect on productivity or 
job creation. The United States also offers incentives for investments 
in machinery--in effect, encouraging firms to replace workers with 
machines. Last year, such capital investments received $22 billion in 
tax breaks, while investments in workers got just $2 billion.
  Surely, there is room within the budget to reorder priorities so 
there can be an incentive for firms to implement plans that benefit the 
whole economy by boosting productivity and creating new jobs.


              4. the small business export enhancement act

  Mr. Speaker, even if a firm succeeds in attracting sufficient capital 
and boosting productivity, it will in many cases still need to compete 
in fast-growing foreign markets in order to prosper.
  Exports are becoming an increasingly important part of the U.S. 
economy. Nationally, exports are growing three times as fast as overall 
economic growth. Over the past 40 years, the rate of job creation in 
trade-related fields grew three times faster than overall job creation. 
One in six U.S. manufacturing jobs is now related to exports, and those 
jobs pay 22 percent more than the average U.S. wage.
  The lesson is clear: As the global economy continues to develop, 
successful exporting will make the difference between a good economy 
and a great economy.
  While the U.S. economy overall has reached world-class exporting 
status, small businesses in the United States still lag behind. Smaller 
companies face special challenges in getting into foreign markets, but 
export assistance generally has not been provided in a way they find 
useful.
  The trade statistics clearly show that small business has not fully 
shared in the global bounty. According to the Commerce Department, only 
10 percent of U.S. firms are regular exporters. A few large firms 
account for the bulk of U.S. exports, despite the fact that 90 percent 
of U.S. manufacturers are small- and mid-size firms.
  Clearly, small businesses remain a large untapped resource of 
potential export growth for the U.S. economy. However, small businesses 
with competitive products frequently face high transactions costs and 
inadequate information about foreign markets, which limit their ability 
to export. They need some additional help, but Government is not 
successfully providing it.
  The Federal Government is the major provider of export assistance, 
spending over $3 billion a year. A quick look at its export assistance 
program reveals why small businesses are having such a hard time.
  There are over 150 Federal export promotion programs fragmented among 
19 different Federal agencies. These programs are characterized by 
duplication of effort, overlap, inefficient dissemination of services 
and information, turf battles, and confusion among both providers and 
users of assistance. The Trade Promotion Coordinating Committee 
concluded that ``for many small- and medium-sized firms, getting 
through the bureaucracy may be as great a hurdle as foreign market 
barriers.''
  While Federal programs trip over each other and frequently miss their 
intended targets, many State-based export assistance providers--
including State departments of trade, local industry associations, 
international freight forwarding companies, local and regional banks, 
chambers of commerce, and world trade centers--have established good 
local networks that can effectively deliver timely, accurate, and 
useful assistance to would-be small business exporters.
  For example, in Oregon the State department of trade, working closely 
with the private sector, has set up an admirable model. It is focused 
on identifying specific, targeted trade leads, doing outreach to 
companies to inform them of opportunities, and working closely with the 
companies to help them through the export process. It is a classic 
example of local leaders who know the local economy working 
cooperatively to get the most out of the State's export potential. 
Unfortunately, in Oregon as in other States, those providers of export 
assistance are woefully short of resources.
  The Small Business Export Enhancement Act would redirect millions of 
dollars from the Federal Government to State-based export providers. 
For the most part, this money will be used to fund partnership 
programs, designed to combine the resources of the Federal Government 
with the local networks of State-based export providers. The bill also 
directs the trade promotion agencies to offset this new spending by 
identifying in a report to Congress savings of at least $100 million to 
be achieved through consolidating or eliminating some of those 150 
Federal programs that provide overlapping or duplicative services.
  Mr. Speaker, the report of the National Performance Review stressed 
that the Federal Government needs to reallocate its export assistance 
resources to sectors that have clearly shown growth potential while it 
works to make its services more accessible to clients. Clearly, small 
business is the obvious place to turn to boost U.S. export growth, and 
the best way to help small business to export is through State-based 
providers that know the local companies and their particular needs.
  If the United States can successfully turn the small business sector 
into a source of export strength, it can provide a structural economic 
boost that can put the country on a permanently higher plane of income 
growth and job creation.


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