'Will He Be a Friend or a Foe?' The campaign is over and one thing is sure: The small-business community will be the winner no matter who gets the prize at the polls.
By Jay Branegan

(FORTUNE Magazine) – If small-business owners are the heroes of the new economy, they have also been the darlings of the presidential candidates. Both Vice President Al Gore and Texas Governor George W. Bush have gone out of their way to praise small business' contribution to growth, jobs, and innovation and to make specific pitches to small-business voters. If you're reading this before a winner is known--and many of you are--the following is a guide to what Bush and Gore have planned for small business. If a new President has already been elected, this will give you some idea of what Democrats and Republicans in the House and Senate have in store for you.

Bush, who likes to say he's a former small-business man (from his days as a Texas oilman) has made "the entrepreneurial spirit of hard-working Americans" a touchstone of his speeches about the economy, while Gore's campaign literature, under the rubric "Fighting for Small Businesses," has taken credit for the record creation of new companies under the Clinton-Gore Administration and for a hefty rise in small-business income. During Clinton-Gore, 2.2 million new companies have been formed and small-business incomes have increased 14.2%, the Administration calculates.

But the candidates' ardor is not returned in equal measure by the small-business lobby in Washington. Traditionally as loyal to the Republicans as labor unions are to the Democrats, the Washington lobbyists have remained solidly pro-Bush. In a Small Business Survival Committee report card grading the candidates' positions on trade, taxes, Social Security, and health care, Gore flunked three out of four, while Bush got two As and two Bs. Likewise, the 600,000-member National Federation of Independent Business, the most muscular small-business lobby, has lauded Bush, the first Texas governor it ever endorsed for reelection, for successfully pushing tort reform to protect businesses from lawsuits and for supporting legislation that dropped 170,000 small businesses from the state's franchise tax rolls.

Bush's running mate, Richard Cheney, compiled an 83% NFIB approval rating during his years as the Congressman from Wyoming, thanks to a consistent anti-tax, antiregulation record. Gore managed only a 32% rating from his time in the House and Senate. His No. 2, Senator Joseph Lieberman (D-Connecticut), scored 38% because of his support of tax increases in the past. Gore has defended his own record by pointing to a host of pro-entrepreneurial Administration efforts, from empowerment zones and the New Markets Initiative to stepped-up Small Business Administration loans to less-intrusive OSHA inspections to a 1995 White House Conference on Small Business.

Still, the pro-entrepreneur lip service from both campaigns misses the point for many small-business folks who feel the really important policies that will affect their company or their industry are just too arcane for a sound-bite-driven race. You didn't hear anything in the debates, for instance, about a change on installment sales, slipped into the tax code last year, that could cut sharply the value of many small businesses. Or about the proposals to set up an independent advocacy office in the Small Business Administration. Says Richard Herring, owner of the 40-employee Gloucester Co., a Franklin, Mass., manufacturer: "It's too difficult for them to get their arms around small business because it's too diverse. The centralized entities are the ones that get the attention of politicians."

Yet because this year many of the front-burner issues in the presidential campaign are also hot topics for the small-business community, entrepreneurs have a real stake in the outcome. Here's a rundown on where Bush and Gore stand.

GENERAL TAX CUTS. This is a big issue with big differences. Bush supports a large, across-the-board cut; Gore favors a set of smaller, targeted ones. The gross figures are gargantuan, with the Texas governor offering a $1.3 trillion cut over ten years, while the Vice President's package would cost about $500 billion.

Gore has said he'd use much of the difference to pay down the national debt and for new spending on key social programs. But for small-business owners, it's the specifics that count. Bush would cut marginal personal rates, replacing the current five brackets of 15%, 28%, 31%, 36%, and 39.6% with four lower rates: 10%, 15%, 25%, and 33%. The largest percentage reduction would go to the lowest-income taxpayers, while the biggest dollar benefits, as Gore has repeatedly argued, would go to the rich--who in this case include owners of many small businesses. Explains Todd McCracken of National Small Business United (NSBU): "Most small businesses are either sole proprietorships, partnerships, or subchapter-S corporations, which all pay personal tax rates, not corporate rates. Bush isn't selling it as a small-business tax cut, but that's what it is."

Gore's cuts are aimed at "working families." He wants to create tax-free "Social Security plus" accounts that allow lower-income workers to build retirement savings alongside Social Security; make the child-care tax credit refundable; pass marriage-penalty relief (more limited than Bush's); expand the earned-income tax credit; make college tuition tax-deductible; and create a $3,000 long-term-care tax credit for those who are responsible for an aged or disabled relative, to name but a few. While many business owners or their employees may qualify for some of these breaks, the savings don't go to the company's bottom line, and they add more complexity to an already too confusing tax code.

But which is the better fiscal policy? Most businessmen would think twice about a tax refund that came with a hike in interest rates and a slowdown in economic growth. Under Clinton-Gore, credit availability has faded as a top concern among small-business people. A Goldman Sachs analysis says a huge Bush tax cut would fuel inflation and force the Federal Reserve to raise interest rates, and concludes, "The economy is more likely to be hurt than helped by a tax cut." But you can find economists on both sides of the argument--Bush rounded up 300 such gurus to sign a letter supporting his idea.

THE ESTATE TAX. It's the one entrepreneurs love to hate, because some family businesses must be sold off to pay its top 55% rate. Bush wants to phase out the so-called death tax over nine years for individuals and family businesses alike. His plan is similar to an estate-tax repeal bill that President Clinton recently vetoed over the loud but unsuccessful protests of congressional Republicans. Gore has noted that only the largest 2% of estates are subject to the tax and calls Bush's plan way too expensive. But Gore concedes that small businesses and family farms have a legitimate gripe over a levy aimed primarily at the wealthy, so he has proposed keeping the tax for individuals but nearly doubling the maximum family business exemption from $2.6 million to $5 million, providing that the heirs keep the business for a certain period of time, as they do under current law. That would, he figures, free 70% of family businesses from any estate tax and cut it for the rest.

HEALTH INSURANCE. Both candidates have proposed that small businesses band together to cut costs. Bush backs Association Health Plans (AHPs), which allow businesses to buy insurance, across state lines, through their trade associations. Gore favors the creation of purchasing coalitions by small businesses and has offered a hefty 25% tax credit to any employees who join, as well as subsidies to set them up. But behind those similar-sounding ideas lie big differences. Gore and the Democrats, backed by consumer groups, have opposed AHPs, claiming they are a way to skirt state regulations and cut costs by culling older and sicker employees. Poppycock, say the trade groups, which already run a number of state-by-state AHPs. They have called Gore's pooling arrangements--which retain sometimes-expensive state mandates such as fertility treatments--costly and bureaucratic.

Both men offer help to workers who can't get insurance through their jobs: Gore served up a 25% tax credit, while Bush suggested a $2,000 credit per family to cover up to 90% of the cost of private insurance, as well as a major expansion of Medical Savings Accounts, a step that Gore has opposed.

THE INTERNET ECONOMY. The high-tech sector has some short-term problems that each candidate would like to solve. More than most small outfits, Net-related firms suffer from the current shortage of skilled workers. Both Gore and Bush favor expanding the H1B visa program to admit more well-trained immigrants. Beyond that, Gore has proposed improving the skills of U.S. workers by creating new 401(j) accounts that would allow employers and employees to put money away tax-free for worker education and would give a $6,000-per-employee tax credit to businesses for high-tech training. Bush, with a booming high-tech community in Austin, has proposed a multipronged effort to promote math and science education in high school and college.

Both favor making the research-and-development tax credit permanent; Gore has vowed to make it partially refundable for small businesses so that they can take better advantage of it. He has also proposed expanding the Small Business Innovation Research Program, which he championed in Congress. Both candidates want the Internet to be a duty-free zone worldwide with no access taxes. On the sticky issue of when e-commerce retailers should pay state sales taxes for interstate sales, Gore has supported extending the moratorium on new or discriminatory taxes for at least two years; Bush has been favoring five years.

EDUCATION. For the long term, a more qualified work force will come only through better schools. Gore has been offering universal preschool, teacher training, and testing along with higher pay, smaller classes, a promise to turn around failing schools, and money to repair crumbling school buildings. Bush has been promoting a $5 billion "reading first" program to ensure that every third-grade child in the country can read. He also touts his own teacher recruiting and training plan, more competition, linking federal funding to improved school performance, and vouchers, although he avoided the word, that would give students stuck in bad schools $1,500 to go someplace else. Both candidates have highly detailed agendas. But in general, Gore would spend more money and Bush would require more accountability. Gore has proposed making $10,000 of college tuition tax-deductible annually, while Bush would expand the current education savings accounts by raising the maximum annual contribution from $500 to $2,000 and allowing the money to be spent on K-12 education too.

TRADE. Few small firms sell beyond the next county, but thanks to the Internet, there's unprecedented new potential to sell and source overseas. Both candidates are professed free-traders, promising to open foreign markets while fighting the dumping of underpriced goods in the U.S. But both have been silent on such programs as the myriad export promotion services for small businesses at the Commerce Department or the Export-Import Bank's credit insurance against political risk or nonpayment by foreign buyers. One reason for the inattention: Small businesses are themselves conflicted over trade. They "feel threatened by foreign competition," says the NSBU's McCracken, "even though we tell them they shouldn't be."

In the end, the choice will be based on some combination of specific pledges, the candidates' general philosophy, and voters' view of their "character." Relying on a politician's promises is as risky as banking on an economist's forecasts. But the campaign has revealed that Bush and Gore do have sharply distinct approaches to government. Claims Dennis Whitfield, NFIB's senior vice president: "The businessman will make more of the decisions under Bush, the government will make more of them under Gore." One thing is sure--the winner's governing philosophy will count for less than his ability to keep the economy humming.

JAY BRANEGAN is a correspondent for Time magazine in Washington. He can be reached at jay_branegan@timeinc.com.