HARRY Truman once said, "If we take care of small business, corporate America will do very well, thank you!"

Tax-exempts bonds will fuel an economic recovery, if Congress extends current enabling legislation and institutes policies that foster entrepreneurship. Long-term capital investment in business expansion will take care of America's economic future, thank you!

Here's what one small county agency achieved in suburban New York between 1981 and 1986. Thirty-four manufacturing and commercial projects were funded, creating over 4,000 jobs. Over $100 million was invested in capital plant and equipment.

In 1986, the tax law was amended to limit the use of these bonds to put more revenue in the Federal Treasury. The same agency closed only two projects totaling $8.5 million and creating only 300 jobs since 1987.

A study released in March by the Illinois Development Finance Authority, "Small Manufacturing, Credit Access and Bank Fragility," confirms the lack of bank credit for small companies.

Firms with assets of less than $25 million have real difficulty in obtaining credit from conventional sources. During the past 10 years, bank loans to small companies have dropped by 40%. While large concerns have access to low-cost commercial paper and taxable debt markets, smaller businesses have no such alternatives.

In the past, banks knew their customers and worked with them to get through hard times. Reasonable credit guidelines and few restrictions on the tax-exempt bond program would encourage commercial lenders to return to the market as business expansion partners. Character lending could again become part of the contemporary banking landscape.

How can Congress help?

Proposed Senate legislation would extend tax law provisions to enable local issuers to finance manufacturing projects on a tax-exempt basis through Sept. 30, 1993, and a permanent extender has been proposed by the House.

Hard times require tough choices. Economic sluggishness, joblessness, and growing social unrest require program change. Few manufacturing plants were destroyed by the Los Angeles riots; most of the enterprises were small mixed-use commercial establishments. The program should be made available to all manufacturing and commercial firms regardless of location.

Amendments to simplify the program and reduce effective interest rates would:

* Remove restrictive arbitrage regulations concerning the use of bond proceeds for projects costs and related investments.

* Exempt from federal income tax

commercial, office, and warehouse V

bond income.

* Permit banks, as bond purchasers, to fully deduct the cost of carrying such bonds.

* Exempt small issues under $10 million in size from the alternative minimum tax.

* Raise the project capital expenditure limit to $15 million and index it for inflation.

* Free up private capital by easing restrictions on tax-exempt related part bond purchases.

Inc. magazine editor John Case, in his book From the Ground UP (Simon & Schuster, 256 pages, 1992), argues that national industrial policies encouraging entrepreneurship will put America back to work.

Economic renewal is ongoing, dynamic, and driven by small business growth. Remove the regulatory shackles and use tax-exempt bonds to assist small business in creating big jobs.

Mr. Lijoi is a bond lawyer with offices in New York and New Jersey.

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