The face-off: Clinton and small business - how the Clinton administration's new policies will affect small business - includes a related article on opportunities for independent contractors - Cover Story

Home Office Computing, August, 1993 by Wesley J. Smith

If You Think That the President's New Policies Won't Directly Affect You, Think Again. Here's the Good, the Bad, And What It All Means

Ronald Reagan heralded the 1980s as the age of the entrepreneur, glorifying start-ups like Apple Computer and Federal Express that blossomed overnight into big businesses. Bill Clinton wants the 1990s to be the age of small businesses--small, small businesses. But will his deficit-reduction, investment and health-reform plans hurt his cause? And what will they do for you, the self-employed professional--the smallest of small businesses?

Small business and the so-called micro-economy already are viewed by many as the foundation of the United States economy, the engine of growth and job creation. This year, Dun & Bradstreet Corp. expects 57 percent of job growth to come from that sector. President Clinton states that companies grossing under $5 million annually account for 40 percent of the nation's employment. California, the nation's largest state, has lost roughly 800,000 jobs since 1991, but Governor Pete Wilson says that his state "has the largest number of self-employed persons in the country, with small and mom-and-pop businesses representing 75 percent of the job creation in California."

No wonder the Clinton Administration has lavished such praise on small-business owners. In his address to a joint session of Congress last February, Clinton repeatedly stressed the benefit of his plan to small business, stating that his proposals would create "new rewards for entrepreneurs who take new risks" through a program that "includes the boldest targeted incentives for small business in history."

One of the President's principal economic advisers during the 1992 campaign, Robert Shapiro, a founder of the Progressive Policy Institute, emphasizes that these "targeted incentives are designed to help all small business, including the self-employed."

If the rhetoric coming from the Administration and its friends can be believed, the 1990s should be rosy for the self-employed. But talk is cheap in Washington, and proposals often offer less than the policies and laws that follow them. To get a fresh perspective on this moving target, we went to small-business proponents and self-employed people to collect their views.

The upshot? There's some good, such as easing of credit regulations and allowing increased deductions for health insurance and buying office equipment. There's some bad, such as increased fuel and income taxes. And a lot's being swept under the rug, because the President hasn't really focused on the particular needs of the self-employed.

THE GOOD

Most observers, representing both sides of the ideological fence, agree that several of the Clinton proposals (along with Democratic-sponsored legislation that the President is expected to support), would significantly benefit the self-employed. These proposals include:

Easier access to bank money. Perhaps the most potentially valuable change in the economic landscape for the self-employed is the President's promise of easier credit for business start-up or expansion. Besides providing access to credit, the President would like banks to make smaller loans to smaller businesses.

"It's very important that bankers be freed from the worry of being second-guessed," says David K. Voight, director of the Small Business Center for the U.S. Chamber of Commerce. "Toward this end, the Administration is proposing four constructive steps: allowing the banks to use character judgments in making loan decisions, reducing bank paperwork, reducing the requirement for continual reappraisals of collateral, and reducing the burden on lenders to justify their lending decisions to the government."

Ronald R. Brill, founder of the Independent Workers Association (Brill describes his organization as "serving non-9-to-5 workers and those seeking independent workstyles"), disagrees. "I don't believe that this or much of the Clinton plan will have more than a marginal effect," he says. "Home-based businesses are not usually capital intensive and, thus, the proposals may be irrelevant to most independent workers."

Still, as Jack Faris, president of the National Federation of Independent Business (NFIB), the nation's largest small-business trade association, states, "When small-business people take out loans, their houses are usually on the line." Thus, policies that make it easier for the self-employed to get access to capital at reasonable terms have to be viewed as a positive step as the nation comes out of the recession-induced credit-crunch.

Full deductibility of health insurance. While not officially part of the Clinton economic proposal, there is a growing push in Congress to make the cost of health insurance 100 percent deductible for the self-employed. In the past, 25 percent of health insurance premiums had been deductible.

Everyone interviewed for this article strongly endorsed full and permanent tax deductibility for the cost of health insurance. Beyond helping the bottom line of the self-employed, allowing health insurance deductibility is a matter of fairness. If employers can deduct health insurance for their employees, why shouldn't the self-employed be entitled to the same tax break for the same outlay?