When the US Congress returns next week it must decide what to do about the Bush administration’s tax cuts, due to expire in December. Against the backdrop of a frustratingly weak recovery, and amid justifiable concerns about a ballooning deficit, a bipartisan consensus has formed around at least maintaining these tax breaks for 98 per cent of Americans. The debate is now whether we should extend tax relief to the top 2 per cent, who earn more than $250,000 each year.

Republicans tend to argue that this is no time to remove spending power from an economy struggling to find its legs. Many Democrats meanwhile see re-instituting higher rates on top wage earners as a first step toward deficit reduction, and one that would present little hardship for wealthier taxpayers. A potential compromise to temporarily extend all the tax breaks for two more years has also gained traction in recent weeks, which the administration is actively considering.

However, this latter approach has problems beyond the $65bn that would be added to the deficit if we keep the cuts for people on the highest incomes. In Washington such “temporary” benefits also have a strange way of becoming permanent. What’s more, if Congress can justify punting on a politically difficult decision, it invariably will.

Meanwhile the non-partisan Congressional Budget Office has told us that extending tax breaks for the top 2 per cent would do little to stimulate our economy.

Instead the administration should consider an alternative compromise.

Extend the tax cuts just for 98 per cent, allowing the cuts for top wage earners to expire as scheduled. But instead of removing $65bn from the economy, we should work with the business community to enact $65bn in new, targeted business tax cuts and incentives to spur private-sector investment.

The logic of this proposal is clear. Our nation’s tax discussion occurs as we look for ways to jump-start the recovery through private-sector job growth. Yet while investment and job creation by businesses remains anaemic, corporate America is more profitable today than in the years leading into this recession. After two years of operational streamlining and painful payroll cuts, leading US corporations reported nearly $2 trillion in cash on their balance sheets at the end of the second quarter.

Yet these businesses currently appear reluctant to invest or create new jobs. Business leaders are understandably concerned about future demand. They also are hedging their bets until the economy begins to fire on all cylinders – and all in the knowledge that government’s traditional tools of monetary policy and fiscal stimulus are already deployed. That means our focus must turn to ways to encourage the private sector to move their trillions in cash off the sidelines and back into our economy.

My proposal does not grow the size of government, or increase tax revenues. Instead it moves tax cuts from one area to another, in order to encourage jobs and investment. It would also provide an excellent opportunity for policymakers to begin to repair their recent frayed relations with leaders of the US business community, at first by working together in a constructive partnership to determine exactly what these business incentives might look like.

In collaboration with business leaders, we might consider a more generous R&D tax credit, which clearly helps to fuel innovation, as well as more generous tax allowances for the expensing of business investment and some fine-tuning of depreciation allowances. Finally other short-term incentives that promote additional hiring, such as a temporary reduction in the payroll taxes paid by employers who hire new workers, could be part of any package.

As we think about how to strengthen our recovery and lower the deficit, I urge all parties to consider a constructive discussion about business tax policies as part of the solution. The extension of the Bush-era tax cuts presents an excellent opportunity to forge this new partnership – but only if all parties put aside partisan talking points. We should all be able to agree that additional investment by the private sector, and not simply by the government, must provide the fuel for the recovery that ultimately will power the growth and competitiveness of our nation.

The writer is US senator for Virginia, serving on the banking and commerce committees