[Weekly Compilation of Presidential Documents Volume 34, Number 19 (Monday, May 11, 1998)]
[Pages 796-799]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
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

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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 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.

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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 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

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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.