Let's hope that 2006 turns out to be a more productive policy year from the small business point of view than 2005 was. 

After all, the 109th Congress is half over, with elections coming in November, and one year of the second term of President George W. Bush is now gone.  One might say that time is running out to get some important things done.

Reform can be a daunting word in politics, but important reform initiatives need to at least get pointed back in the right direction. 

Let's take Social Security.  The dismal facts have not changed.  The system offers an abysmal rate of return, and no ownership rights.  Yet, the push for at least partial privatization has all but stopped.  Allowing individuals to choose to steer part of their payroll taxes into investment/savings account would boost returns and provide ownership, while also giving the economy help by expanding the pool of private capital.

Tax reform also has stagnated since the President's Advisory Panel on Federal Tax Reform issued its recommendations this year.  The panel's offerings, constrained by the unrealistic chains of "revenue neutrality," generated strong opposition from certain sectors, while failing to earn enthusiastic support from the tax reform crowd, particularly business.  Congress and the White House should get the focus back on a complete overhaul of the system, while centering the debate on options that would represent clear cut, vast improvements over our current mess - the flat tax or the national retail sales tax, for example.

Yet, we can't simply wait and hope for tax reform to get back on track while immediate steps should be clear.  Entrepreneurs, investors and the economy in general would be served well by making the key aspects of the 2001 and 2003 tax cuts permanent.  It's certainly a plus to extend the life of lower personal income, capital gains and dividend tax rates, and enhanced small business expensing levels for capital investments.  But to secure the full benefits of these tax relief measures, as well as the phasing out of the death tax by 2010, they must be made permanent.

For good measure, extensions of partial relief from the alternative minimum tax help, but the bigger issue must be tackled.  The AMT was introduced in the late 1960s to make sure a few hundred, high-income taxpayers didn't avoid paying income taxes altogether.  Predictably, it turned into a tax monster hurting millions of individuals and businesses now, threatening millions more in the not-too-distant future, and doing damage to the economy by reducing the effects of beneficial tax incentives.  The individual and corporate AMTs don't need to be tinkered with or reformed, they need to be eliminated.

Making the 2001 and 2003 tax relief measures permanent and killing the AMT also would move us closer to a simpler, fairer, more pro-growth tax code, which is the ultimate objective of tax reform.

It's also long overdue for the White House and Congress to realize that tax relief and tax reform cannot be viewed in a budgetary vacuum.  The other side of the fiscal equation - spending - must be brought under control.  Indeed, the most glaring failure of Republican-led government over the past five years has been a complete inability or willingness to restrain the growth of government spending.  Rather than slowing, it has accelerated.  This spending binge has placed tax relief and reform in real jeopardy. 

Health care is another issue crying out for additional, positive changes.  Pro-market policies need to be enhanced in order to help individuals and small businesses struggling with heavy health care costs.  Health savings accounts (HSAs) have been a major step forward, and any additional measures to strengthen these as a choice in the marketplace would be beneficial.

Congress also would help by opening up a nationwide marketplace for health insurance. Congressman John Shadegg (R-AZ) has a bill to allow consumers to purchase insurance across state borders - in person, by mail, or via the Internet. The policy bought would contain the benefits from the state where the consumer purchased the policy. Creating this nationwide marketplace for health insurance would open up competition between the states, and allow individuals to bypass unwarranted and costly regulatory morasses, which have significantly driven up costs in certain states.

Affordable, reliable energy also is an immediate and long-term concern for businesses and consumers.  Too often, some in Congress push dangerous ideas like tightening CAFE standards, which lead to more deaths on our roads and highways due lighter and smaller vehicles, or bewildering efforts like capping or reducing carbon-dioxide emissions, which will push energy costs higher and accomplish nothing for the environment.

To the contrary, energy policy simply needs to allow the market to work. That doesn't mean doling out corporate welfare.  It does mean opening up international markets, keeping taxes low, maintaining a minimal regulatory touch and allowing for greater energy exploration, development and production (such as in the ANWR).

Regarding immigration reform, an effort exclusively focused on beefing up border security will accomplish nothing.  Punishing employers and making them the immigration police also is counter-productive, unfair and costly.  Immigration reform must be comprehensive in dealing with both the national security aspects and the economic aspects of immigration.  The economics include the realities that the overwhelming number of legal and illegal immigrants come to this nation seeking opportunity; they make positive contributions to the U.S. economy as workers with varying skill levels, many as entrepreneurs, and all as consumers; and without high levels of immigration now and in the future, the U.S. will suffer labor shortages, higher business and consumer costs, slower economic growth, and formidable government budget problems.  The economics dictate expanding legal channels for immigration, and opening paths to citizenship for the millions of undocumented individuals already working in our economy.

Of course, much more needs to be accomplished. Key areas such as regulatory reform, tort reform, postal reform, further advancing free trade, are critical to small business growth, job creation and our nation's competitiveness. 

The basic idea is to get the policy agenda refocused on changes that will advance entrepreneurship, expand economic opportunity, and grow the economy.

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This column may be reprinted with appropriate credit.
 

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.