Op-Ed

To Fix the Economy, the President Should Help Small Businesses Form and Grow

Robert E. Litan

Mr. President, you know you’re in a fix and so is the economy. You know too well how partisanship has poisoned the atmosphere in Washington (and in the country). That and the latest GDP statistics explain why consumers and businesses won’t spend. They lack confidence in the future.

Only actions, not speeches, will change their minds. Here are two broad ideas that just might have a chance of getting something done, even with the election looming.

First, admit you made a mistake in not immediately embracing the $4 trillion deficit reduction package recommended by your own bipartisan commission last December. By not doing so, you had no anchor in your subsequent negotiations with Congress. Moreover, you had four GOP commission members who could have been great emissaries to others in Congress during those talks.

There is still time to change, which you have implicitly acknowledged by urging the congressional panel created by the debt ceiling bill passed in August to go well beyond its remit of a $1.5 trillion target. Why not urge them to take your commission’s deal, plus a short-run extension of the payroll tax cut as an insurance policy against further short-run backsliding in employment gains?

Don’t worry about being attacked for admitting a past error. Americans like occasional humbleness in their presidents. President Kennedy was never more popular than after he admitted his mistake in ordering the Bay of Pigs invasion in 1961.

Second, make the reinvigoration of America’s startup engine the centerpiece of your jobs message tonight. Abundant research has documented that until the recession young firms were responsible for all net new jobs created since 1980. But new research also underscores that the numbers of jobs created by these firms have been falling.

You began to recognize this problem with the creation of the Startup America campaign this year, which will rely heavily on volunteer mentors and private sector-led initiatives to help young companies. In addition, your administration just issued some administrative tweaks under current immigration laws to let in some more immigrant entrepreneurs (who, by definition, can only create jobs, not take them from anyone).

In this grave economic climate, we need comprehensive legislation — a Startup Act — to both help the formation and growth of companies, and to remove roadblocks.

We should have no statutory caps on immigrants who start businesses here and employ Americans.

You should again urge Congress to make permanent capital gains tax relief for investors in new companies if they hold those investments for at least five years. You might suggest Congress permit new corporations to pay no or low taxes in their first years, to help cash flow grow and hire more workers.

The shareholders of young public companies should be allowed to make their own cost-benefit calculation of whether it’s worth it to them to pay the onerous costs of complying with the internal auditing requirements of the Sarbanes-Oxley Act.

While the job-creating effects of pending patent reform legislation are uncertain, one provision is a no-brainer: charging higher fees to those who want a quick decision from the patent office (with a lower fee schedule for individual and small business inventors). More importantly, ask Congress for the authority to condition federal research grants to universities on their faculty members having the freedom to choose how and when to license their inventions. This would vastly speed up the introduction of new technologies into the marketplace, and the formation of companies that do so.

Finally, now is the time to dramatically overhaul our excessively complex and costly regulatory system, which impedes job growth by new and existing firms alike. Ask Congress to sunset all rules after 10 years, while requiring all new rules to pass a benefit-cost test.

Public opinion surveys show Americans love entrepreneurs. If you challenge Congress to help them, you’ll be pushing on an open door.

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