Friend or Foe? The campaign is all but over. Who's the best man for small business? It's a matter of political taste.
By Jay Branegan

(FORTUNE Small Business) – If small business owners are the heroes of the new economy, they're also the darlings of the presidential candidates. Both Vice President Al Gore and Texas Gov. 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. Bush, who likes to say he's a former small business man (from his days as a Texas oilman) makes "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," takes 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 were 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 remain 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, lauds 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 a sterling 83% NFIB approval rating during his years as the Congressman from Wyoming thanks to a consistent antitax, antiregulation record. Gore managed only a 32% rating from his time in the House and Senate. His No. 2, Sen. Joseph Lieberman (D-Connecticut), scored 38% because he has supported tax increases in the past. Gore defends 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, all 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 won't hear much on the stump, for instance, about a key change--slipped into the tax code last year--on installment sales that threatens to cut sharply the value of many small businesses. Or about the proposals to set up an independent advocacy office in the Small Business Administration (SBA). Says Richard Herring, owner of the 40-employee Gloucester Co. Inc., 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 this White House race. Here's a rundown on where the candidates 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 says he'd use much of the difference to pay down the national debt. 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 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 notes that only the largest 2% of estates are subject to the tax and says Bush's plan is 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 proposes 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 proposals for small businesses to 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 offers 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, oppose 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 call 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 serves up a 25% tax credit, while Bush offers 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 opposes.

--THE INTERNET ECONOMY. The high-tech sector has some short-term problems that each candidate seeks 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 wants to improve 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, proposes 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 goes further in making it partially refundable for small businesses so they can take better advantage of it. Gore also proposes 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 supports extending the moratorium on new or discriminatory taxes for at least two years; Bush favors five years.

--EDUCATION. For the long term, a more qualified work force only will come through better schools. Gore is 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 promotes 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 a limited voucher plan that gives students stuck in bad schools $1,500 to go someplace else. Both candidates have highly detailed agendas. But in general, Gore spends more money and Bush requires more accountability. For college, Gore proposes making $10,000 of tuition tax-deductible annually, while Bush wants to 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 as well as college.

--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 are 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' overall economic programs, and their general philosophy. Of course, relying on a politician's promises is as risky as banking on an economist's forecasts. But Bush and Gore do have sharply distinct approaches to government. Claims Dennis Whitfield, NFIB's senior vice president: "The business man will make more of the decisions under Bush, the government will make more of them under Gore. It's a fundamental difference." Bush figures that distinction will be the clincher, while Gore hopes to trump it with a pitch that he's actually a business-friendly New Democrat. And he has a two-term economic boom behind him to prove it. Who's got the better argument? That's why we have elections.