    [Public Papers of the Presidents of the United States: William J. Clinton (1998, Book I)]
    [May 5, 1998]
    [Pages 694-696]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Message to the Congress Transmitting a Report on the State of
    Small Business
    May 5, 1998

    To the Congress of the United States:
        I am pleased to present my fourth annual report on the state of
    small business. In short, the small business community continues to
    perform exceptionally well. For the fourth year in a row, new business
    formation reached a record high: 842,357 new firms were formed in 1996.
        The entrepreneurial spirit continues to burn brightly as the
    creativity and sheer productivity of America's small businesses make our
    Nation's business community the envy of the world. My Administration has
    worked hard to keep that spirit strong by implementing policies and
    programs designed to help small businesses develop and expand. We have
    focused our economic strategy on three pillars: reducing the deficit,
    opening up markets overseas, and investing in our people through
    education and technology. Our efforts with respect to small business
    have been concentrated in a number of specific areas, including
    directing tax relief to more small businesses, expanding access to
    capital, supporting innovation, providing regulatory relief, opening
    overseas markets to entrepreneurs, and strengthening America's work
    force.

    A Balanced Budget and Taxpayer Relief

        When I took office, the Federal budget deficit was a record $290
    billion. I determined that one of the best things we could do for the
    American people, including small business, would be to balance the
    budget. Because of our hard choices, the deficit has been reduced for 5
    years in a row. By October 1997, the deficit had fallen to just $22.6
    billion--a reduction of $267 billion or 90 percent. These lower deficits
    have helped to reduce interest rates, an important matter for all small
    businesses.
        Small business owners have long recognized the importance of this
    issue. At each of the White House Conferences on Small Business--in
    1980, 1986, and 1995--small businesses included on their agenda a
    recommendation to balance the Federal budget. With passage of the
    Balanced Budget Act of 1997, I signed into law the first balanced budget
    in a generation. The new budget will spur growth and spread opportunity
    by providing the biggest investment in higher education since the GI
    bill more than 50 years ago. Even after we pay for tax cuts, line by
    line and dime by dime, there will still be $900 billion in savings over
    the next 10 years.
        And at the same time we are easing the tax burden on small firms. My
    Administration and the Congress took the White House Conference tax
    recommendations seriously during deliberations that led to the Taxpayer
    Relief Act of 1997. The new law will direct billions of dollars in tax
    relief to small firms over the next 10 years. Small businesses will see
    a decrease in the estate tax, an increase to 100 percent over the next
    10 years in the percentage of health insurance payments a self-employed
    person can deduct, an updated definition of ``home office'' for tax
    purposes, and a reduction in paperwork associated with the alternative
    minimum tax.
        Significant new capital gains provisions in the law should provide
    new infusions of capital to new small businesses. By reducing the
    capital gains tax rate and giving small business investors new options,
    the law encourages economic growth through investment in small
    businesses.

    Access to Capital

        For so many small business owners, gaining access to capital
    continues to be a very difficult

    [[Page 695]]

    challenge. The U.S. Small Business Administration (SBA) plays a key role
    as a catalyst in our efforts to expand this access. The SBA made or
    guaranteed more than $13 billion in loans in 1997. Since the end of
    fiscal year 1992, the SBA has backed more than $48 billion in loans to
    small businesses, more than in the previous 12 years combined. In 1997,
    the SBA approved 45,288 loan guaranties amounting to $9.46 billion in
    the 7(a) guaranty program, a 23 percent increase from 1996, and 4,131
    loans worth $1.44 billion under the Certified Development Company (CDC)
    loan program.
        Included in the 1997 loan totals were a record $2.6 billion in 7(a)
    and CDC loans to more than 10,600 minority-owned businesses and another
    record $1.7 billion in roughly 10,800 loans to women-owned businesses.
    Over the last 4 years, the number of SBA loans to women small business
    owners has more than tripled, and loans to minority borrowers have also
    nearly tripled.
        The Small Business Investment Company (SBIC) program, the SBA's
    premier vehicle for providing venture capital to small, growing
    companies, produced a record amount of equity and debt capital
    investments during the year. The program's licensed SBICs made 2,731
    investments worth $2.37 billion. In 1997, 33 new SBICs with combined
    private capital of $471 million were licensed. Since 1994, when the
    program was revamped, 111 new SBICs with $1.57 billion in private
    capital have entered the program.
        And in the past year, the SBA's Office of Advocacy developed a
    promising new tool to direct capital to dynamic, growing small
    businesses--the Angel Capital Electronic Network, or ACE-Net. This
    effort has involved refining Federal and State small business securities
    requirements and using state-of-the-art Internet technology to develop a
    brand new nationwide market for small business equity.

    Government Support for Small Business Innovation

        As this report documents, small firms play an important role in
    developing innovative products and processes and bringing them to the
    marketplace. Federal research and development that strengthens the
    national defense, promotes health and safety, and improves the Nation's
    transportation systems is vital to our long-term interests. Our
    Government has instituted active policies to ensure that small
    businesses have opportunities to bring their innovative ideas to these
    efforts.
        The Small Business Innovation Research (SBIR) and Small Business
    Technology Transfer (STTR) programs help ensure that Federal research
    and development funding is directed to small businesses. In fiscal year
    1996, more than 325 Phase I and Phase II STTR awards totaling $38
    million went to 249 small businesses. Also in 1996, the SBIR program
    invested almost $1 billion in small high technology firms. The program
    has touched and inspired individuals like Bill McCann, a blind--and once frustrated--trumpet player who used
    SBIR funding to help start a company that designs software to
    automatically translate sheet music into braille. Today, Dancing Dots
    Braille Music Technology is rapidly expanding the library of sheet music
    available to blind musicians.
        Other initiatives include the National Institute of Standards and
    Technology's (NIST) Advanced Technology Program, enabling small high
    technology firms to develop pathbreaking technologies, and NIST's
    Manufacturing Extension Partnership, which helps small manufacturers
    apply performance-improving technologies needed to meet global
    competition. Two of the SBA's loan programs--the 7(a) and 504 loan
    programs--currently assist 2,000 high technology companies. And the
    SBA's ACE-Net initiative is especially designed to meet the needs of
    these dynamic high technology firms.
        Because they give small firms a footing on which to build new ideas
    and innovative products, these efforts benefit not only the small firms
    themselves, but the entire American economy.

    Regulatory Relief

        A pressing concern often identified by small businesses is unfairly
    burdensome regulation. My Administration is committed to reforming the
    system of Government regulations to make it more equitable for small
    companies. In 1996, I signed into law the Small Business Regulatory
    Enforcement Fairness Act, which strengthens requirements that Federal
    agencies consider and mitigate unfairly burdensome effects of their
    rules on small businesses and other small organizations. A small
    business ombudsmen and a new system of regulatory fairness boards,
    appointed

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    in September 1996, give small firms new opportunities to participate in
    agency enforcement actions and policies. Because agencies can be
    challenged in court, they have gone to extra lengths to ensure that
    small business input is an integral part of their rulemaking processes.
        Many agencies are conducting their own initiatives to reduce the
    regulatory burden. The SBA, for example, cut its regulations in half and
    rewrote the remaining requirements in plain English. All of these
    reforms help ensure that the Government maintains health, safety and
    other necessary standards without driving promising small companies out
    of business.

    Opening Overseas Markets

        Key in my Administration's strategy for economic growth are efforts
    to expand business access to new and growing markets abroad. I want to
    open trade in areas where American firms are leading--computer software,
    medical equipment, environmental technology. The information technology
    agreement we reached with 37 other nations in 1996 will eliminate
    tariffs and unshackle trade in computers, semiconductors, and
    telecommunications. This cut in tariffs on American products could lead
    to hundreds of thousands of jobs for our people.
        Measures aimed at helping small firms expand into the global market
    have included an overhaul of the Government's export controls and
    reinvention of export assistance. These changes help ensure that our own
    Government is no longer the hurdle to small businesses entering the
    international economy.

    A 21st Century Work Force

        American business' most important resource is, of course, people. I
    am proud of my Administration's efforts to improve the lives and
    productivity of the American work force. We know that in this
    Information Age, we need a new social compact--a new understanding of
    the responsibilities of government, business, and every one of us to
    each other.
        Education is certainly the most important investment we can make in
    people. We must invest in the skills of people if we are to have the
    best educated work force in the world in the 21st century. We're moving
    forward to connect every classroom to the Internet by the year 2000, and
    to raise standards so that every child can master the basics.
        We're also training America's future entrepreneurs. The SBA, for
    example, has improved access to education and counseling by funding 19
    new women's business centers and 15 U.S. export assistance centers
    nationwide. And we are encouraging businesses to continue their
    important contributions to job training. The Balanced Budget Act of 1997
    encourages employers to provide training by excluding income spent on
    education for employees from taxation.
        We are taking steps to improve small business workers' access to
    employee benefits. Last year, I signed into law the Small Business Job
    Protection Act, which, among other things, makes it easier for small
    businesses to offer pension plans by creating a new small business
    401(k) plan. We made it possible for more Americans to keep their
    pensions when they change jobs without having to wait before they can
    start saving at their new jobs. As many as 10 million Americans without
    pensions when the law was signed can now earn them because this law
    exists.
        Given that small businesses have created more than 10 million new
    jobs in the last four years, they will be critical in the implementation
    of the welfare to work initiative. That means the SBA microloan and One-
    Stop Capital Shop programs will be uniquely positioned to take on the
    ``work'' component of this initiative. The work opportunity tax credit
    in the Balanced Budget Act is also designed as an incentive to encourage
    small firms, among others, to help move people from welfare to work.
        A small business starts with one person's dream. Through devotion
    and hard work, dreams become reality. Our efforts for the small business
    community ensure that these modern American Dreams still have a chance
    to grow and flourish.
        I want my Administration to be on the leading edge in working as a
    partner with the small business community. That is why an essential
    component of our job is to listen, to find out what works, and to go the
    extra mile for America's entrepreneurial small business owners.

                                                          William J. Clinton

    The White House,

    May 5, 1998.