The government should encourage small business by doing absolutely nothing.
That's right -- nothing ...
It should stop altogether making up incentive/punishment programs to get businesses to do what the government wants them to do. And it should stop trying to "level the playing field"; which, of course, is just another way to intervene on behalf of their political allies.
As a small business owner all you want is predictability and stability from your government -- not more carrots to chase or sticks to avoid. The more small business "incentives" they legislate, the more chaos and distortion they inject into the business environment.
You want to encourage small business growth? It's simple. Stop trying to "help" us with elaborate schemes. You want more competition? Stop fooling around with basic market dynamics to protect your political allies.
Do that, and everything will work out fine.
I would never solely trust the "invisible hand" to manage a just and fair marketplace. A certain amount of regulation is required to protect consumers. That I accept, completely understand, and support.
However, when government picks and chooses which industries and businesses it will promote and support, and develops "programs" to appease special interests and manipulate outcomes under the guise of "helping small business," then it has crossed a not-so-fine line. So this is not about regulation. It's about unnecessary, unproductive, meddling for purely political reasons.
Every new business incentive/punishment program the government creates automatically spawns people intent on "gaming" the system, and builds entirely new -- otherwise useless -- entities designed to help more people participate in that gaming.
Then more legislation is passed to address the problems government just created, more gamers are generated, and so on and so on. You almost have to play -- at least defense -- to survive, and that just shouldn't be the case, especially if you are playing by the established rules.
So just tell us what the deal is. Not what it might be or could be. Then stick with the deal for a reasonable period of time so we can plan. Remove the gamesmanship. All we're looking for is stability.