By Fortune Editors
March 13, 2012

The tax code is archaic. The infrastructure is crumbling. We’re doing our best to stifle innovation. What to do? Here’s how I’d get the U.S. back on its feet.

By Sandy Cutler, contributor

Our nation is facing a crisis, a crisis of leadership. Decisions today are being based, sadly, on political dogma. The guiding principles that made our country great — creating jobs, fostering innovation, and providing more economic opportunity — have been overtaken by mindless policy debates while our national debt escalates and our competitiveness is weakened. Here are some ideas that together will help right the ship by reducing uncertainty, accelerating investment, and creating jobs.

First, we need to reduce the destructive uncertainty surrounding corporate tax reform. The Obama administration’s recent proposal to lower the maximum rate companies pay from 35% to 28% (and 25% for manufacturers) is a good start but doesn’t go far enough. The maximum corporate domestic rate should be lowered to 25% for all companies (in line with the average rate in the OECD nations).

Next, we need to tackle the issue of overseas profits. American corporations today sit on billions that they don’t want to bring home because they will be double-taxed — once by the country where the profits are earned and once by the U.S. after they are repatriated and foreign tax credits are applied. The President’s new plan has called for a minimum tax on overseas profits. Instead, we need a competitive territorial tax system modeled on the one in place in Britain: Countries tax only income derived within their borders. In addition, we should enact a one-time, tax-free repatriation of cash held abroad by U.S. corporations, provided the funds are invested in productive assets in the U.S.

Congress should also pass a 10% investment tax credit for 2012 and 2013 — paralleling the actions taken by both the Kennedy and Reagan administrations to accelerate job growth in the U.S. At the same time, let’s broaden the definition of eligible investment assets to include nonresidential buildings as well as equipment. That will help jump-start the depressed nonresidential construction industry, which is such a major potential employer. And speaking of construction, we can get our residential-housing industry back on its feet by streamlining the myriad new and overlapping regulations that have contributed to the virtual halting of the residential mortgage process in our country.

To improve our education system and accelerate retraining, we must restore the strength of our two-year community colleges and their ability to provide vocational training. Not everyone needs a four-year degree, but many need skills such as welding and operating machine tools to enter the workforce. Such schools have had great success in getting students ready for the workforce.

Finally, we need to rebuild our roads, highways, and bridges to remain competitive with the rest of the world. How? Through an additional gasoline tax of 25ยข per gallon that would flow into an infrastructure trust fund — not the general fund. Modern infrastructure is providing an important advantage to developing countries. Our leaders must make a competitive infrastructure an important priority here as well.

Political ideologies and bickering have marginalized what once made the American economy the marvel of the world: innovation, great infrastructure, and focused education. Together, we can put the emphasis back where it belongs — and our country and people back to work.

–Sandy Cutler is CEO of Eaton (ETN), a $16 billion-a-year power-management company.

This article is from the March 19, 2012 issue of Fortune.

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