FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you for your introduction, Jack (Ferris, President of NFIB). Thank you for inviting me to address the National Small Business Summit of the National Federation of Independent Business. It’s always a pleasure for me to talk to small business leaders, the people who are on the ground, who are making things happen in the United States’ economy. Your organization reminds us that our economy is built not on the swirl of activity in Washington, but rather on the hard work and creativity of entrepreneurs and innovators. Prosperity is built one job at a time.

Some of you know that I just returned from a tour through Africa, traveling with the rock star Bono. My kids think I’m "cool" now. But the trip was a lot more than cool. The things I saw in Africa, both the human suffering and human triumphs, deeply affected me. Among the most moving experiences were meetings with African entrepreneurs, individuals who are changing their lives and their communities for the better through their own hard work. I was reminded that small businesses and individual enterprise are the key to economic growth and development not just here at home, but around the world.

For example, in Uganda I met a woman named Lukia, a single mother, who started a restaurant with a $50 micro-loan and now employs a dozen of her neighbors, pays for school for her children, owns her home, and cares for babies orphaned by AIDS.

Lukia, like so many entrepreneurs around the globe, impressed me with her courage and can-do spirit. But many more, not just in Africa but all around the developing world, are prevented from realizing the same dreams. They are frustrated by corruption, bad laws, and good laws that go un-enforced. In too many cases, they suffer from leaders who steal rather than lead. They lack an environment with good governance and economic freedom that would allow them to make real their ambitions for a better life.

Seeing what I saw there also makes me appreciate what we have in the United States. In Africa, I met with Lukia and other successful entrepreneurs but their successes are too rare, even as aspirations for success are universal.

In the United States, we enjoy the greatest economic freedom in the world. Entrepreneurial success, while never easy, is an experience that millions share. Too often we take that for granted. The bedrock of the American way of life, and the foundation of our economy, is that any person with vision and courage can make his or her dream real.

Our laws, and our government, at their best, let people do just that. They let business owners decide how to invest their money -- in hiring and training new employees, or buying better equipment, or advancing research and development. It’s not a perfect system, but we’re trying to make it better every day.

We are fortunate to have a President, George W. Bush, who understands that private enterprise is the real source of American prosperity, and that economic freedom isn’t only a true and just principle -- it is also the best policy. He understands, and I understand, that economic freedom is a principle that we have to fight for every day, to keep America prosperous.

Thanks to your efforts making good use of your economic freedom, our economy today is far ahead of where pessimists even six months ago thought it could be.

The underlying statistics are remarkably positive, and I believe we are on track to reach a 3-3.5% growth rate by the end of this year. In fact, the slowdown that started in 2000 is now officially the only single-quarter recession since World War II. Total GDP loss was 0.3%, compared to a 2.2% average drop for other recessions. Some credit for the shallowness of the slowdown goes to President Bush for advancing tax reform last summer at exactly the time our economy needed it most.

President Bush’s first tax relief package, passed a year ago last week, has allowed business owners to put more money into productive endeavors and new jobs, instead of sending it to Washington. Over 30 million business owners who are taxed on their business income at individual rates stand to benefit. Tax relief came at just the right time for consumers, putting cash in their pockets right at the low point of the slowdown, last summer and fall.

I am also pleased to say that with President Bush’s direction, the Treasury Department has altered the tax rules for service-oriented businesses with less than $10 million revenue, so that these organizations can use cash accounting rather than accrual accounting methods. This allows you to spend more time on your business, and less worrying about needless paperwork.

Government doesn’t fix the economy, we just give you better tools to do what you do best.

You all, with your ingenuity, turned the economy around quickly. In fact, small businesses provide two-thirds to three-quarters of the net new jobs in America, represent more than 99 percent of all employers, and generate more than 50 percent of America’s private sector output. You are the ones who make things happen in our economy.

And largely because of America’s indomitable spirit, the fundamentals of our economy continue to be strong. Housing and consumer demand remain strong, and auto sales are ahead of industry expectations for the year, even coming off of all-time highs late last year. And there are signs that business investment, a necessary ingredient in this recovery, is picking up.

The Job Creation Act, passed this March, provides new incentives for investment and job creation by allowing partial expensing of equipment. Now we are seeing that declines in business investment in capital goods have been narrowing, and new orders for capital goods have been increasing for the past several months.

For example, new orders for non-defense capital goods, excluding aircraft, increased by 4% in April. Excess inventories have been largely eliminated and capacity utilization is rising. As the latest NFIB survey indicates, deterioration in investment demand seems to be ending.

In a welcome sign of strength last month, unemployment fell to 5.8%, and the number of new jobs grew for the second month in a row. Nothing matters more to this Administration than keeping Americans working. Most encouraging to me is the ongoing boom in productivity growth. Non-farm labor productivity has risen 4.2% over the past four quarters. The 8.4% annualized productivity growth last quarter -- the strongest quarterly gain in almost 19 years -- has helped boost profit margins for businesses. Higher productivity means America is working smarter -- creating more value in the same amount of time. Higher productivity means that individual business owners like you are taking advantage of your economic freedom to produce results. You are putting new ideas to work, and putting people to work in the process.

I’m an optimist about our economy, but I’m no Pollyanna. The numbers are telling a positive story these days, but that’s not always the story people are telling each other. Too many are still out of work, and we need to see more business investment to maintain the recovery.

Clearly there is more we can do to add vitality to our recovery. First, the President has called on Congress to make his tax reform permanent. The House has voted to make the death tax repeal permanent, and it will vote this week to make marriage penalty relief permanent. Unfortunately, yesterday the Senate voted down permanent repeal of the death tax.

America’s prosperity comes from the millions of individuals who spend their time, their energy and their resources pursuing ideas, setting up new businesses and creating value.

Innovative entrepreneurs deserve to pass their life’s work to their children, not to the government. NFIB has been a tireless advocate of this cause, and I want to thank you for that.

We will continue to fight to ensure that you can pass on to your families the results of your life’s labor, and to ensure that your thriving enterprises can continue to employ American workers and create prosperity.

And there’s more to be done in the tax arena, especially in simplifying the tax code. Taxpayers spend as much as $125 billion each year, or about 1% of GDP, trying to comply with the tax code, and small businesses suffer disproportionately. You taxes are as complicated as a big company’s, but you can’t afford a whole tax department to take care of them.

My dream is that we will succeed in simplifying the tax code, and make it worthy of the principles of our nation. Then the tax lawyers and accountants will have to be retrained, so they can work at something that adds value to our economy -- start a new business, maybe.

There is another disgrace in this country right now: the unethical behavior of a few notorious company executives.

Small business owners know that, at the end of the day, they have to make good on their obligations to suppliers, employees, investors and customers. It is your reputation and your bank account on the line. You either make the sales and pay the bills, or you go home hungry. There’s no hiding from that truth.

But we’ve seen instances lately of executives who don’t seem to have lived by the same standard. I believe these cases are infrequent, but even a few bad cases can poison confidence in our system, which depends on entrusting public company managers with investors’ capital. We will never be able to write rules that anticipate every possible subterfuge. Nonetheless, we must take action to restore investor confidence in the accuracy of public company information.

President Bush has proposed a ten-point plan for strengthening corporate responsibility and renewing investor confidence in public companies, and I support it strongly. Much of the plan can be implemented by the SEC, without congressional action. Corporations themselves have taken corrective action, as boards get together and members speak up demanding to know that their accounting standards are beyond reproof. The Business Roundtable has recommended actions that all responsible corporations should take to improve their disclosure practices and better assure the independence of auditors. And the New York Stock Exchange has also put forward recommendations to improve the information available to investors about companies traded there. Some needed changes do require legislative action, and I look forward to working with Congress to improve accountability and avoid hastily constructed reforms that will have harmful unintended consequences.

In addition to calling on Congress to support further tax reforms, an end to the death tax, and better rules for corporate governance, there are several other issues on the table in Congress that need legislative action.

First, Congress should support the President’s plan for creating the Department of Homeland Security. No business person can invest for the future if the future is not secure. No government function is more important than defending our Homeland. A corollary is that Congress should pass federal terrorism risk insurance, which offers financial protection for businesses against the risk of future terrorism. I’m pleased the Senate is taking up this legislation today.

Businesses, especially those in development, cannot bear this risk alone, and insurers cannot price it. As a result, inaction on terrorism risk insurance is starting to impede economic growth.

Also, I want to thank the Senate for voting to support an increase to the debt limit on Tuesday. Now House leaders must join the Senate in recognizing that the good credit of the United States is essential for financing the war on terrorism, meeting the government’s obligation to Social Security recipients, supporting our men and women in uniform and many other important functions. The House should vote to increase the debt limit right away.

Congress must also complete work on Trade Promotion Authority, so the President can negotiate to open more markets abroad to US goods and services. All of you have a stake in that.

Again, I want to thank the National Federation of Independent Businesses for inviting me to speak today. It is wonderful of you to take time away from running your enterprises, creating value in America, to come to Washington. This Administration respects and admires your good work. We do not take your economic freedom for granted, just as, by coming to Washington, you show that you do not take good governance for granted.

Our job together is to protect and expand that freedom, so that you can keep on building a prosperous America. Thanks for your support.