Message to the Congress Reporting on the State of Small Business

To the Congress of the United States:

It is my pleasure to submit my third annual report on the state of small business. America's small business owners are individuals with countless new ideas, employers and workers who produce a vast array of goods and services, taxpayers who pay many of the bills, and economic pioneers who help decide the future direction of our economy. In their endless variety, small firms help create a flexible, diverse, and lively marketplace.

For generations, entrepreneurial business owners have been in the forefront of the dynamic economic changes that continually revitalize our democracy. In the early days of our Republic, small business innovators led the way in developing more productive farming technologies. Greater agricultural productivity eventually freed other entrepreneurs to develop and commercialize new manufacturing processes. These processes and manufactured products set a new standard for America -- and for the world. But America's small business innovators did not stop there. They started another revolution by anticipating and responding quickly to the demands that grew out of the new, higher standard of living -- demands for services and sophisticated new information technologies.

Small businesses have made important contributions to the economy, not only by introducing new products and processes and creating jobs, but also by making the economy more adaptive and flexible -- by retaining workers longer during recessions and hiring workers earlier as expansions begin.

There is no doubt that 1991 was not an easy year for the American economy or for small business. The recession that began in the third quarter of 1990 carried over into 1991. Business formation rates were down, and business closings were up. The flow of financing slowed as banks and businesses grew more cautious about business expansions.

Yet in this recession, as in other economic downturns, small businesses continued to function as a source of jobs, creating many of the new jobs in the economy. Rather than lay off workers, many small firms tightened their belts in other areas. And they continued to innovate, introduce new products, and contribute to their communities.

Our economy has begun to grow again. Still, small firms face difficult challenges in the months and years ahead. The truth is that health care costs are too high and the unmet need for health coverage is great in small businesses. And of all employers, small businesses are least able to afford the expensive mandates that have been advocated by some. The proposal I presented to the Congress would not resort to mandates, but would build on the strengths of our private health care system to make health insurance affordable for America's workers and their families.

Adjustments occurring in our financial institutions have made it difficult for many worthy small businesses to find the capital they need to start up or expand. Therefore, my Administration is taking steps to encourage investment in business ventures in a number of ways. I have proposed that the Congress cut the capital gains tax so that investors will have an incentive to buy into new ventures. Another proposal I have made is to create an investment tax allowance that would assist in starting new firms.

And we can encourage some new investment by adapting programs that are already underway. For example, the Small Business Administration is working with banks to implement innovative loan programs that are channeling funds to smaller firms in some of the most economically depressed areas.

Another obstacle that can stand in the way of small firm growth is too much regulation. My Administration this year instituted a moratorium on new Federal regulations to give Federal agencies a chance to review and revise their rules. And we are looking at ways to improve our regulatory process over the long term so that regulations will accomplish their original purpose without unduly hindering economic growth.

We also need to encourage innovation -- such as that exhibited by thousands of small high technology firms -- by making the research and experimentation tax credit permanent. My Administration is committed to exploring the promise of new technologies.

This report documents the increasing, healthy diversity of our small business community, as minority- and women-owned businesses enter the marketplace in record numbers. I want to keep encouraging that diversity through our Federal procurement programs.

I also want to see more of the Nation's economically depressed communities reap the benefits of business growth. To that end, I have asked the Congress to pass my enterprise zone legislation, which will provide incentives to businesses that start up in specially designated areas, particularly in inner cities.

Looking to the future, it is clear that we need to improve our educational system so that America's workers, particularly in small firms, will be in a better position to compete in a more and more sophisticated global marketplace. My America 2000 education strategy is designed to give parents, teachers, and communities more freedom and flexibility in designing education programs to meet their needs -- and to make America the world's leader in education.

Many of these proposals for economic recovery and growth are being enacted now; others will require action by the Congress. I am committed to working with the Members of Congress to develop and enact a broad economic plan we can all live with. These combined actions will help small business to move ahead to create the economic revolutions that will lead us into the 21st century.

George Bush

The White House,

September 29, 1992.