Presidential Report:
The State of Small Business
THE WHITE HOUSE
Office of the Press Secretary
________________________________________________________________________
For Immediate Release 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 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 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.
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