Right: What are the best ways to put America's economy back on track?

Cut regulatory burdens, lower corporate taxes

Posted: Friday, February 04, 2011

The next two years will feature divided government, with Democrats controlling the White House and Senate and Republicans controlling the House of Representatives.

As such, hopes might seem slim that bold, serious steps designed to get the American job machine humming will emerge from Pennsylvania Avenue. That is too bad; there’s a lot Washington could do to foster job creation.

Here are a few ideas chosen in part for their potential to gain bipartisan support.

The first is to rein in the nation’s regulatory state, which has become increasingly unaccountable and burdensome.

First up for reform should be the Environmental Protection Agency. At the beginning of this year, new EPA rules regulating greenhouse gases went into effect. The rules are modest at first. But over time the scope of the rules will grow to apply to more industries and commercial enterprises.

The EPA rules were described by Time magazine as possibly “the most far-reaching environmental regulatory scheme in American history.” The cost of such regulations is difficult to estimate, but rest assured they won’t come cheap. The rules amount to a tax on business activity, one that will result in job losses or shipping jobs overseas to countries without a zealous EPA.

It’s worth recalling that Congress recently considered and rejected curbs on greenhouse gas emissions, in part because of concerns about the effect on jobs. That the EPA would now impose curbs after they were rejected by the elected representatives of the American people gives some sense of how unaccountable EPA has become.

Bipartisan regulatory reform is possible. In the late 1970s, faced with an anemic economy and high unemployment, liberal Democrats joined conservative Republicans to push regulatory reform in airlines and transport, among other areas. Those efforts helped power a twenty year economic boom.

Today’s weak economy offers another chance for both parties to come together.

Sen. Jim DeMint, R-S.C., and Rep. Geoff Davis, R-Ky., are pushing a regulatory reform proposal called Regulations from the Executive in Need of Scrutiny or REINS Act. Sen. Mark Warner, D-Va., has also developed a promising regulatory overhaul. Clearly there is bipartisan recognition of the problem. Now it’s time for both parties to act.

Congress should also pass a corporate income tax cut. A high tax rate here encourages business activity and resultant job creation to take place in more tax friendly regions such as Asia.

Most Americans are surprised to learn that the United States has one of the world’s highest corporate tax rates. In fact, as American Enterprise Institute economist Kevin Hassett has pointed out, if Japan cuts its corporate tax rate this year as planned, the United States will have the highest corporate levy in the world. A smart move would be to lower the rate to 25 percent or even eliminate it altogether.

Last, the creation of new companies is vital to economic growth and job creation. Research from the Kauffman Foundation in Kansas City shows that start-up and young companies are responsible for all new net job creation over time.

To encourage more start-ups, Congress should make new companies exempt from payroll taxes for their first five years. This will encourage new firm creation and hiring.

This process can be speeded up by issuing so-called “start-up visas” for high-skilled immigrants who want to come to the United States and found companies. This is win-win for the country America imports brains and talent from abroad to start companies that will yield jobs for native-born Americans.

Americans aren’t used to persistently high unemployment. They’re understandably frustrated. Taking these steps will help get Americans back to work.

• Nick Schulz is a fellow at the American Enterprise Institute.



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