4 ways Congress can help American businesses

The jobs report for May brought the US unemployment rate up to 8.2 percent. Meanwhile, the number of people not in the labor force – which includes those unemployed Americans who have stopped looking for work after months or years if discouragement – remains near an all-time-high of 88 million. And the Dow Jones Industrial Average is struggling to remain above 12,000. The message is clear: This recovery from the Great Recession is still fragile.

To be fair, some of the reasons are outside the control of American policymakers – chiefly, the persistence of the European sovereign debt crisis. However, the inability to generate sustained growth is also the result of some fundamental weaknesses in the economy that policymakers could be addressing – but aren’t.

Recent reforms aimed at revival – like the payroll tax cut, stimulus, and international trade agreements – certainly have brought some benefit. Notwithstanding, they have mostly just nibbled around the edges. Legislators should focus their attention on these four straightforward policy changes that have the potential to rewrite and fix the rules of the game for American commerce.

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1.Cut business taxes

Internal Revenue Code volumes sit in the IRS Taxpayer Advocate's office in Washington March 20. Op-ed contributor Yuri Vanetik says the 'business leaders and entrepreneurs of today and tomorrow need our legislators to show some leadership and tackle the substantial reforms this economy needs.' (Ann Hermes/The Christian Science Monitor)

Just talking about changing tax policy will not change anything. Japan recently cut its corporate rate, giving the United States the ignoble distinction of having the highest rate in of all developed countries at just over 39 percent.

A material and immediate cut would likely start drawing businesses back to America’s shores. President Obama himself has come out in support of a seven-percentage point drop. As legislators begin deliberating, that ought to be the starting point.

Simplify the tax code

While the United States has the highest statutory corporate tax rate of all developed countries, many companies escape taxes. The reason? The code has morphed into an infinitely complex tool of social engineering. It’s riddled with loopholes and exemptions. It is not surprising that special interests regularly exploit its complexities to carve out favors. Who can forget when it emerged in early March that General Electric completely avoided federal taxes in 2010?

The tax code’s complexity is a major drag on the American economy. Individuals and businesses spend enormous sums just to comply. That’s money that could be going toward productive investments.

Research from the Laffer Center finds that for every dollar collected by the IRS, taxpayers pay another 30 cents for compliance, with total tax compliance expenses sucking $431 billion from the American economy annually.

The quickest way to simplify the tax code would be to install a flat tax – one rate for personal income, another for businesses. Doing so would cut down on waste and favoritism. Hong Kong has had a 15 percent flat income tax since 1947, and it’s one of the most prosperous cities in the world. There is a lesson to be learned here.

Get rid of outdated, ineffective regulations

Legislators should act to sunset regulations that aren’t working or have outlived their usefulness. The hard truth is that much of the regulatory environment for business in this country is driven by inertia: Once installed, it takes a herculean effort to get any regulation revoked.

There is an alarming tendency on the part of the government to over-regulate or penalize economic behavior. Fear of expensive compliance pushes away businesses and innovation to other countries.

That’s the wrong way around. The burden should be on the government to justify the continuation of a particular regulation. Regulations should only be retained if they serve a clear and meaningful purpose.

Currently, the regulatory burden is especially heavy on the chief job creators in the US – small businesses. Firms with fewer than 20 employees incur an average of $10,000 in regulatory costs every year, per employee. Those expenses are directly handicapping their ability to expand and hire.

Congress should establish an independent review commission that will regularly apply a critical eye to the national regulatory infrastructure. Wasteful, useless, and overly punitive rules should be identified and swiftly eliminated.

Use market principles to reform government

The government needs to be more proactive about adopting time-tested market mechanisms in its own operations. There’s no reason public programs can’t harness the competitive forces proven to bring down prices and drive up quality in the private sector.

The chief market-style reform currently being considered on Capitol Hill is the “premium support” plan for Medicare introduced by Rep. Paul Ryan (R) of Wisconsin and Sen. Ron Wyden (D) of Oregon, which would give beneficiaries a predetermined sum to spend on an insurance plan of their choice. This would force insurers to compete for public dollars. Medicare’s prescription drug program has operated in this fashion for over half a decade, and it has cost 40 percent less than originally predicted.

America hasn’t shaken off the recession, but strong long-term growth is within reach. The business leaders and entrepreneurs of today and tomorrow need our legislators to show some leadership and tackle the substantial reforms this economy needs.

Yuri Vanetik is a private investor and philanthropist. He is the principal of Vanetik International, LLC and a national board member of Gen Next, a nonprofit membership organization that engages executives and entrepreneurs to provide long-term solutions for future generations.