[Weekly Compilation of Presidential Documents Volume 35, Number 18 (Monday, May 10, 1999)]
[Pages 823-826]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
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 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.

[[Page 824]]

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

[[Page 825]]

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 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 expending and tax-

[[Page 826]]

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 
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.