Who's right? Democrat Bernie Sanders, who says the system in this country is rigged against the little guy and proposes redistributing wealth and promoting economic growth by more heavily taxing the 1 percent? Or Republican Donald Trump, who would dramatically reduce  taxes on businesses and the wealthiest in an effort to spur the gross domestic product (GDP) to 6 percent growth?

According to the Economic Report of the President released on Monday, the resounding answer is Sanders. The 300-page report, which combines the annual analyses of the president's Council of Economic Advisers, takes a deep dive into the financial state of the nation, including an examination of the entrenched problems afflicting the middle class and low-wage workers, such as a drop in home ownership rates and a general decline in opportunities. The picture that emerges suggests that among the world's developed nations, the U.S. is fast becoming one of the least economically mobile.

Here's the good news: Small businesses have an enormous part to play in the ongoing economic recovery, and in increasing economic opportunities, for the current year and in the years to come.

"In this new economy, workers and start-ups and small businesses need more of a voice, not less," President Obama writes in his opening letter to the report. "The rules should work for them. And this year I plan to lift up the many businesses that have figured out that doing right by their workers ends up being good for their shareholders, their customers, and their communities, so that we can spread those best practices across America."

The report lays plenty of blame for the middle class's woes on the top 1 percent. It also points to so-called rent seekers, which include big businesses that generate outsize profits through monopolistic control of industries and by squeezing workers to accept the lowest salaries possible.

The administration's solutions include strengthening the progressive tax code, as well as creating new programs that insulate workers from the increasing vicissitudes of the economy. These could include wage insurance, or giving opportunities to the most economically disenfranchised such as pre-kindergarten education, free community college, and a higher minimum wage.

While these will no doubt be fighting words for many business owners, the report voices accolades for startups. They are, of course, some of the biggest job creators, accounting for 2 million jobs in 2013 alone, according to the report. More important, as creators of new commercial technologies, they potentially create greater market efficiencies and growth. Further, they force larger, entrenched companies to become more innovative in order to compete.

Slow growth ahead.

Yet startups are facing considerable obstacles. To illustrate that point, the report cites data that suggests the U.S. has become less entrepreneurial over the past 40 years as startups have struggled to compete in increasingly consolidating industries. Further evidence of the decline can be seen in the decreasing rates of first-time patents since the 1980s, as well as increases in demand for professional licensing, which could further restrict new business opportunities by requiring expensive (and often unnecessary) credentials.

Unfortunately, despite the rosy predictions of Trump and other presidential candidates, the report suggests the U.S. won't see GDP growth above 2.3 percent in the next decade, which translates into an unemployment rate of 4.9 percent--just slightly lower than where it is currently. The report also forecasts short- and long-term interest rates will ratchet up steadily over the next decade to 3.2 percent and 4.2 percent, respectively, which means the costs to borrow are also certain to go up.

While the president's report does not propose any quick fixes for growth, it suggests that large-scale investment in infrastructure improvements, regulations that ensure the internet remains open to all, and protections for the increasing number of workers who wind up as contractors in the gig economy will be essential.

"By instituting reforms that better protect and incentivize innovators, motivate more entrepreneurial startups to enter and compete against established firms, and encourage workers to seek employment opportunities that are best matched to their skillset, the Administration aims to foster productivity growth," the report says.

Directionally, those may be things more of the candidates can agree on, even if they don't agree on the exact mechanisms for how to get there.

Published on: Feb 23, 2016