How The President Can Rekindle Spirit Of Job-Producing Innovation

In his regular Saturday address on Aug. 1, President Obama commented on the need for the country to "recapture the spirit of innovation." He further opined that "innovation is essential to prosperity."

Neither one of these concepts is lost on regular readers of Investor's Business Daily, as every day the paper highlights new, innovative American companies and the prosperity they create.

But Obama's statements leave one wondering:

Where's the other half? Where are the government policies that encourage innovation and risk taking among the country's entrepreneurs?

Legislation passed thus far by Congress and signed by the president falls well short of encouraging America's entrepreneurs by providing them with incentives for risk taking and innovation.

The language contained within the stimulus bill was narrowly focused on the energy sector, creating incentives for consumers to invest in environmentally friendly alternatives to fossil fuel. While laudable, this narrow focus leaves entrepreneurs in other exciting fields such as biotechnology, medical devices and information technology empty-handed.

Why not put America back to work in many different fields by providing incentives for innovation in a broad range of industries?

Congress could start by passing legislation to cut payroll taxes for younger companies that hire up to 1,000 new employees. Go one step further and make those payroll taxes slide down on a scale that lowers the tax incrementally for employees 1,001 to 2,500.

Enact a sunset provision on these cuts if you're worried about longer-term unintended consequences.

When we're losing jobs at a rate of 200,000-plus each month, we need efforts to encourage hiring large numbers of people. And eliminate the notion of using the tax code to punish those employers that don't provide medical insurance to employees under age 30.

If you want to help new college graduates find jobs and innovate, make it easier for employers to hire them when they're young, healthy and probably don't want extensive health care coverage anyway.

Imagine what these simple ideas would do for innovation and employment in Silicon Valley, the Research Triangle and other high-tech areas around the country.

To stimulate demand, quickly enact broad investment tax credits for productivity-producing equipment and software technology. With an aging population of PCs and a new paradigm of information technology emerging in software-as-a-service and cloud computing, we should encourage the rapid adoption of this model by providing investment tax credits for early adopters.

Enterprise IT spending is relatively weak. But some larger companies will spend now in order to save later - witness Merrill Lynch's virtual desktop strategy outlined in the latest Information Week magazine. Let's accelerate the adoption of these and other kinds of productivity tools with investment tax credits that will help larger businesses and give them room to innovate too.

Finally, we need to eliminate class-warfare language when analyzing the impact of capital gains tax cuts (i.e., "tax cuts for the rich"). We also need to understand the impetus of our economic predicament.

In 1961, John Kennedy realized the enormous positive result on the revenue side of the government's ledger by lowering taxes. This positive impact was proved again in 1981 by Ronald Reagan and in 2001 by George W. Bush. It was not the tax cuts that produced deficits, nor was it tax cuts that produced the recent recession.

Simple fact: Tax cuts boosted government revenues.

It isn't that we tax too little; we spend too much. Americans instinctively know that you cannot tax and spend your way to prosperity.

The recent recession was not caused by tax cuts or a lack of government regulation. It was caused mostly by the implosion of an overlevered banking sector that was unwittingly encouraged by the government with the Community Reinvestment Act of 1977 (with multiple revisions through the years), the Financial Services Modernization Act of 1999 and the assistance of Fannie Mae, Freddy Mac and the Fed.

What all started as a well-intentioned effort to encourage lending and homeownership among low-income people became a program that went massively awry.

Be not confused: Lowering capital gains taxes will let capital flow more freely to our most productive assets and will not lower government revenues or cause a deeper recession.

These are facts borne from the past. Why won't the government enact capital-gains tax cuts like this when they have worked so well in the past? Ideology? One wonders how important ideology is to a person who is unemployed and struggling. The best welfare program is a job.

The president is half-right when he says we need to "recapture the spirit of innovation," but remains only half-right without putting government policies in place to support and encourage that spirit.

The next generation of young American entrepreneurs is out there. Many are unemployed and looking for an opportunity.

Let's encourage them by enacting simple policies like those above that will bring innovation, produce additional jobs and pull our economy more quickly out of the recession.