From the September 2004 issue of Entrepreneur

In recent months, many of the barbs traded between 2004 presidential candidates Sen. John F. Kerry and President George W. Bush have been about foreign affairs. The campaigns have sparred over the rationale for the Iraq war, each man's military service and other divisive foreign topics.

But polls show that for most Americans, the war is a secondary issue compared to the economy. For small companies, this is even truer. During the first half of Bush's term, the economy entered a prolonged slowdown, seriously hurting entrepreneurs who didn't have the capital to survive. Some complained the White House wasn't helping smaller companies pull themselves up; others believed the Bush administration's macroeconomic policies, including its tax cuts and regulatory rollback, were providing a broad stimulus for smaller firms. Indeed, in recent months, job growth has been stronger. And The Conference Board, a research group, reported that consumer confidence was at its highest in two years as of June.

Now entrepreneurs are faced with a choice. Bush believes his broader macroeconomic policies have steered the economy into safe waters and will ultimately benefit entrepreneurial companies. Kerry, former chairman of the Senate Committee on Small Business and Entrepreneurship, believes the president has largely ignored entrepreneurs, in favor of large companies, and that the economy remains weak. Kerry proposes a raft of specific, targeted initiatives focused on small business.

Checking the Scorecard

Both men can claim some small-business legislative achievements. "Kerry has been a major player on the Small Business and Entrepreneurship committee," says Joel Marks, executive director of the American Small Business Alliance, a nonpartisan trade group in Washington, DC. In 20 years in the Senate, Kerry has focused on issues of small companies' access to capital and on minority entrepreneurs. He has tried to preserve and expand the SBA's MicroLoan program as well as its flagship 7(a) loan program-even as the White House has cut 7(a). Similarly, Kerry has fought to preserve the SBA's Women's Business Centers-which provide women entrepreneurs with business training and technical assistance-from funding cuts.

The senator has also used his time on the committee to increase small firms' access to federal contracts-a major issue, as defense spending has skyrocketed in the past three years. This year, the senator has proposed legislation that would increase the federal government's target for giving contracts to small businesses from 23 percent of all contracts to 30 percent. As president, Kerry says he plans to provide small companies with more federal contracting opportunities by reducing the practice of "bundling," in which small contracts are linked together to make one big contract that's easier for a larger company to handle. However, Kerry has also been one of the Senate's loudest voices for environmental standards, workplace safety and higher minimum wages; he has received high marks from conservation groups like the Sierra Club. These positions have not always pleased small businesses.

Bush, meanwhile, has argued that the kinds of specific measures Kerry favors are less important than getting the entire economy back on track. "Bush's most important economic accomplishment [for small companies] has been the tax cuts; they've left money in the pockets of individuals," contends Edward Hudgins, Washington, DC, director of The Objectivist Center, a free-market-oriented think tank. "Half of small businesses get their capital from savings-of their own, of friends and of family-so the Bush tax cuts have been helpful to these businesses." The White House also got the estate tax repealed, a goal supported by small-business organizations.

While the president has focused on macroeconomics, Bush has not completely shied away from programs specifically targeting smaller companies. Though the White House cut funding for some small-business loan programs, like 7(a), the president increased the amount of capital spending that entrepreneurs can expense on their taxes. Annual write-offs, in effect through 2005 and retroactive to purchases made in 2003, have been raised from $25,000 to $100,000. The Bush administration has also developed a strategy to increase small companies' ability to compete for federal contracts.

Sharp Differences

The two candidates differ sharply on some obstacles facing small companies, however.

  • Issue 1, Health Care: Bush and Kerry offer different solutions to the skyrocketing cost of health care, which Marks says is now the top issue for small companies, with premiums rising by more than 10 percent each year. "It's crippling entrepreneurship and innovation," Marks says. Bush has advocated allowing small employers to band together and buy insurance through trade organizations, an idea known as "association health plans," or AHPs. The White House has also supported the use of medical savings accounts (MSAs), in which employers contribute a set amount of money toward employees' health care, and then employees cover the rest, up to a certain amount. In theory, these MSAs are supposed to provide incentives for employees to keep health-care costs down. Though some small-business groups believe these proposals will allow entrepreneurs to negotiate better rates, others are not so sure. A recent study by Mercer Risk, Finance & Insurance Consulting suggested that AHPs might actually result in higher premiums for small companies, because they could allow insurance firms to evade caps on premium hikes.

For his part, Kerry is touting a different health-care plan, a broader initiative that would make Washington responsible for insuring the uninsured and would subsidize many small companies, giving them refundable tax credits of up to 50 percent for health insurance they buy for their workers. (According to the National Association for the Self-Employed, some 60 percent of America's uninsured come from households headed by self-employed individuals.) Kerry's plan is broader than Bush's and would likely insure more workers; however, it also promises to be much more expensive.

  • Issue 2, Taxes: If elected, Bush plans to make permanent his 2001 and 2003 tax cuts, worth some $1.3 trillion, a move he says will keep the economy growing. Bush also wants to make permanent his cut on corporate dividends and the estate tax, which is scheduled to expire in less than a decade. Yet even though Bush's tax cuts and broader economic agenda have resonated with some smaller firms, they may not have been that useful. The Center on Budget and Policy Priorities, a Washington, DC, economics think tank, has shown that some 50 percent of small-business owners will get less than $500 back from the 2003 tax cut, and that the estate tax repeal benefited primarily the wealthiest Americans.

Kerry, meanwhile, wants to repeal the tax cuts for families making more than $200,000 per year to pay off the deficit and spend more money on health care and other programs. At the same time, Kerry is planning a cut in corporate taxes of roughly 5 percent. The senator believes that this corporate tax cut, in combination with other initiatives, would help create 10 million new jobs in his first term, though many economists discount this claim as hyperbole. In fact, Chris Edwards, fiscal policy director of the Cato Institute, a nonprofit public policy think tank in Washington, DC, contends that a corporate tax cut larger than 5 percent is needed to have a strong economic effect, given that U.S. companies will still face higher corporate tax rates than most foreign firms. For his part, Bush says he favors lower corporate tax rates but has not offered specific proposals for cutting them.

  • Issue 3, Manufacturing: The two candidates are also divided on how to handle American manufacturing-particularly small manufacturing. The manufacturing sector was hit hard by the downturn of recent years, and regions with large industrial work forces, such as Pennsylvania and Ohio, will be crucial swing states in November. Courting these voters, Kerry has proposed a new, targeted tax credit for manufacturers who remain in the United States, as well as a plan to close tax loopholes that supposedly promote job flight from America. For his part, Bush says these targeted credits rarely work and contends more credits will only add more complexity to a tax code that already baffles many smaller firms.

Kerry has proposed restoring funding for several government programs that aid small manufacturers. He favors the Manufacturing Extension Partnership (MEP), a federal initiative designed to support small manufacturers' critical needs, whose budget has been cut repeatedly by the Bush administration. Kerry wants to increase funding for the MEP by $200 million annually and hopes to create other government programs to increase capital to manufacturers.

What Works for You?

Though Marks praise Kerry's legislative record, he says the senator "has not played up this credential" and has not struck a chord with entrepreneurs. The president, meanwhile, has appeared at a number of small-business events on the campaign trail, to mixed reaction. Perhaps neither candidates' proposals will resonate with small-business owners. It remains to be seen in November.

In Their Words

John Kerry

What do you see as the biggest issues facing small businesses today?
Staggering health-care costs. [They] shot up 47 percent under this administration and prevent small businesses from expanding their work forces. On the Senate small-business committee, I have consistently supported allowing self-employed individuals to deduct 100 percent of their health-care costs, [and] I also worked with Sen. John McCain [to] give small businesses a health-insurance expenses credit.

I also think access to capital is a major issue. There's been a dramatic decline in VC funding...leaving many businesses without a source of equity financing. I led the fight to reauthorize the Small Business Technology Transfer program that provides R&D funding to small businesses, which increased funding for the program by $150 million. I fought against the elimination of all three [government] microloan programs, and pushed for accountability from the SBA and to restore 7(a) funding after Administrator Hector Barreto announced this January that the loans would be stopped indefinitely.

As president, how would you address these issues?
On health care, I will allow small businesses to buy into the same health plan as members of Congress. I've also proposed refundable tax credits for up to 50 percent of the cost of coverage to small businesses and their employees. [And] I will make health care more affordable for employers and employees by having the federal government help with certain high-cost health cases. Since Bush took office, health-insurance premiums for small firms have risen faster than costs for large firms. Bush has offered nothing to address [these] rising costs for small-business owners. My plan is focused on lowering overall costs throughout the health-care sector, while greatly expanding health-insurance coverage.

On accessing capital, I will ensure that small businesses have the federal support they need to grow and thrive. I will help entrepreneurs bridge the gap between their need for capital and traditional financing sources by increasing the federal government's VC investments.

What about the overall regulatory environment for small businesses?
I have several policy advisors who've either been entrepreneurs or [have] been advisors to entrepreneurs. And I've been a small-business owner myself [of a small shop in Boston], so I have a good appreciation of the issues small companies face.

Small businesses are drowning in tax paperwork. I will reduce this burden by simplifying tax filing for small businesses, including allowing the IRS and state agencies to combine, on one form, both state and federal employment tax returns. Even with the tax credits, the process will be streamlined. Small businesses demand it, and we need to deliver.

The Bush Campaign

Entrepreneur spoke with two of President Bush's top small-business advisors, who shared their thoughts about the president's record and his future agenda for small business.

What do you see as the biggest issues facing small businesses today?
Megan Hauck, Deputy Policy Director of Bush/Cheney '04: The rising cost of health care-costs are borne more by small companies. Our solution is not just government help; it's doing things to empower the private sector. We want to give more [health-care] options for more people. There isn't one panacea [for health-care costs]-there isn't going to be one approach that works.

What is the president's view of some of the specific government programs, like the Manufacturing Extension Partnership, that are targeted to help manufacturers?
Gary Blank, Deputy Policy Director of Bush/Cheney '04: The president is much more interested in creating the proper environment for doing business so that government isn't involved in creating jobs.

If the president's view is that creating the environment for business is most important, what has he done in this area?
Blank: The Treasury Department has made it easier for small companies to file income tax returns, reducing their tax burden. And we're still working on a new strategy on the issue of bundling [federal] contracts; we have to work with federal agencies to make it easier for small companies to compete. And legal reform is important. Our general attempt is to try and curb frivolous lawsuits, to deliver medical malpractice reform so that it's clearer to small businesses what they're liable for [in the workplace].

There has been a lot of debate in recent years over the SBA and the importance of its loan programs. How does the president view these programs?
Blank: When we were asked "What is the most pressing issue for small businesses?" my answer wasn't SBA loans. You have to place your priorities where you want. [SBA's] 7(a) [loan program] can't be a replacement for what's going on in the private sector, though the government sometimes has to get involved in providing seed capital for small companies.

Still unsure how you're going to cast your ballot when you hit the voting booth? Here are more resources to help you research the candidates.

Joshua Kurlantzick is a writer in Washington DC.