    [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.