Small Business Deserves A Bigger Break

One of the few things Clinton Democrats of the 1990s have in common with Reagan Republicans of the 1980s is a healthy respect for entrepreneurs as job generators par excellence. Yet at a time when they face mounting obstacles to growth, there is a gap between the Administration's rhetoric and policy concerning the small business community.

It's not as if the Clintonites aren't trying to help. They are. The new regulations that allow banks to make so-called character loans to small-business people is a welcome move that might open the financing spigot. But the broad policy initiatives that are part of the Administration's overall economic package appear to have been written by a coterie of lawyers and academics who never bothered to schmooze with the Kalamazoo and Peoria Chambers of Commerce.

Take the permanent investment tax credit, the key Clinton small-business initiative. It's O.K. for small manufacturing and high-tech companies, which tend to generate well-paying jobs with good benefits. Yet with a sales cap of only $5 million, eligibility is severely limited and there is not much for the huge service sector.

How about the 50% capital-gains tax break on profits made from the sale of stock in small companies held for at least three years? That's O.K., too, but it applies only to companies that have raised less than $50 million in capital. Unfortunately, companies that raise more than $50 million in capital are usually the ones that use stock financing.

It gets worse. The proposed hike in top personal-income tax rates from 31% to 36% will hit hundreds of thousands of small businesses organized as sole proprietorships, partnerships, or Subchapter S corporations, which pay taxes at individual rates. Then there are the new regulations and mandates. Many small-business people already have to deal with family leave and providing access to the disabled. The next mandate will be health care. National Small Business United estimates that small-business owners face up to $40 billion in new health-care costs.

So what should the Clinton Administration do to bring its talk in line with small-business reality? The easy steps would be to bump up the annual sales cap on the investment tax credit from $5 million to $50 million and raise the $50 million capital limit for the capital-gains tax break to $200 million. A second step would be to ease in mandated health care over a period of years and keep the required health-care package bare bones, with employees sharing the cost.

The most challenging step wouldn't cost a cent. Small-business people will tell you that what's crippling them isn't just complying with government regulations but the crushing paperwork demanded by an avalanche of unintelligible forms. Not only does this paperwork siphon off time, it is expensive. Here's how to cut it:

-- Consolidate all government regulations that apply to small businesses.

-- Cut down the number of forms.

-- Make the forms easy to follow.

The money saved by millions of entrepreneurs would help pay for new taxes and mandates and generate more jobs over the next four years.