Race to the Top

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.

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This article was originally published in the September 2004 print edition of Entrepreneur with the headline: Race to the Top.

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