Annual Report to the Congress on the State of Small Business

March 18, 1983

To the Congress of the United States:

Small businesses represent an important part of the American economy. The efforts of men and women who operate small businesses are vital to the Nation's economic growth. As documented in the attached Report, small businesses have performed relatively well during the recent recession. As the economy continues to recover, small business has a vital role to play. My Administration's economic program will enhance the ability of small business to meet these challenges.

Small businesses can make several important contributions to economic recovery. About forty percent of private sector employment is in small, independently-owned businesses. We need to recognize the small business role in our economy, particularly in job creation. This is especially important in light of current high levels of unemployment.

Small businesses are important sources of product and process innovations. Small business efforts provide needed flexibility for our economy to meet foreign competition and changing economic realities. There exists a great reservoir of export potential in the small business community and we need to make greater efforts to use that resource.

Inflation, high interest rates, excessive taxation, and burdensome regulation are serious problems for small business, and their abatement has been the key goal of my economic program. While we have made much progress on these fronts, our most important small business priority remains the assurance of an economic climate of opportunity for small businesses to grow and prosper.

In the past year we have undertaken several important initiatives responsive to small business concerns:

  • Inflation, which for the past 10 years has increased small business costs and eroded profit margins, has been cut to about one-third of the rate in effect the year before I took office.

  • The Federal government is imposing fewer regulations and less paperwork on small business, and agencies are working with the Regulatory Flexibility Act to minimize the burden of regulations on small firms.

  • Tax barriers to investment in small firms have been reduced. I supported and signed legislation to reform Tax Code Subchapter S, making it easier for new, small corporations to enjoy the benefits of limited personal liability for corporate debts, while being subject to individual income tax.

  • Reforms of the estate tax law, indexing of tax rates, and cuts in individual tax rates all make it easier for owners of small businesses to build and maintain their operations.

  • With the enactment of the Small Business Innovation Development Act of 1982, P.L. 97 - 219, major Federal agencies are now required to dedicate more of their research and development budgets to small businesses.

  • With the enactment of the Export Trading Company Act, small- and medium-sized manufacturers will be able to compete in foreign markets on an equal footing with their competitors in other countries.

  • We have eliminated a major barrier to small business involvement in Federal procurement -- the government's habit of paying its bills late. With the enactment of the Prompt Payment Act, P.L. 97 - 177, the Federal government must now pay its bills on time or be subject to interest penalties.

  • The purchase by the Federal government of goods and services from the private sector should utilize efficient and able small firms to the extent possible and practicable. As detailed in the Report which follows, we have expanded the amount and proportion of Federal procurement from small, minority, and women-owned firms.

Creating an environment that permits small business to grow, create jobs and earn a profit requires continued efforts that include monetary soundness, reduction of Federal spending, and more rational Federal regulatory policy. There are several specific policy initiatives that we are pursuing toward this end:

d

The Social Security System must be sound. The recommendations of the Bipartisan Commission provide a plan that is fair to the retired as well as to the workers and the employers who must share in the tax burden. We must not assume that employers who create jobs have bottomless pockets to support an unreformed system. Thus, we support the National Commission's balanced package to assure solvency of the Social Security System.

d

We will vigorously pursue Federal enactment of enterprise zone legislation to encourage the location of business, large and small, in designated areas where growth has lagged. We will ensure that enterprise zone incentives are meaningful to small firms so that their prospect for growth is high.

d

Worker retraining will be important to many of our unemployed who are caught in the shift of our economy away from some of its traditional industrial patterns. Small firms are leading that shift, and we must utilize the expertise and judgment already available in small firms. The Congress should enact my proposed jobs tax credit for the long-term unemployed. This will increase the incentives for employers to hire new workers.

d

We must continue to pursue regulatory reform through Congressional and Administration action. The Clean Air Act, the Clean Water Act, and the Resource Conservation and Recovery Act all need Congressional reauthorization. We must ensure that a proper balance is set between the costs of regulation and foregone opportunities to small companies and the environmental standards which our society demands.

d

The effort to reduce and reform outmoded and unnecessary government regulation must continue. We have made significant progress in slowing the growth of regulation, and must reinforce our efforts to reduce existing regulatory burdens, especially those that disproportionately undermine small business opportunities.

d

Our government policies on procurement must be administered so as to utilize the best that small firms have to offer in goods and services. The role of government should not include performing services and activities that can effectively and efficiently be carried out by the private sector, and we will work for policies which increase reliance on the private sector.

The central parts of our economic programs are in place and the recovery has already begun. The flexibility and the energy that enable our economy to recover in situations such as this are found in great doses among small businesses. To help small business realize its full economic potential, I am calling upon the Congress and upon the members of my Administration to be always mindful of the important role small business plays in our economy.

This statement and the following Report are the second I have presented to Congress as required in Title III of Public Law 96 - 302. I believe that our continued efforts to explore and understand the importance of small business to our economy will lead us to join together to pursue policies which will foster the growth of this critical sector of the American economy.

Ronald Reagan

The White House,

March 1983.

Note: The report is printed in ``The State of Small Business: A Report of the President -- Transmitted to the Congress March 1983, Together With the Annual Report on Small Business and Competition of the U.S. Small Business Administration'' (Government Printing Office, 370 pages).