Senator Sarbanes and Rep. Michael Oxley have both retired from Congress, but our country remains burdened by their legacy. The Sarbanes-Oxley Act was a frantic, imprudent expansion of federal power in response to a series of extraordinary events. It imposes enormous direct compliance costs on publicly traded American companies and even larger indirect costs by discouraging risk-taking, which is essential to entrepreneurship and economic growth.

Sarbanes-Oxley criminalizes corporate behavior when there is no intent of wrongdoing. As Milton Friedman said in an interview with The New York Sun last year, “Sarbanes-Oxley says to every entrepreneur, ‘For God’s sake don’t innovate. Don’t take chances because down will come the hatchet. We’re going to knock your head off.'”

Fraud and embezzlement are serious crimes that everyone agrees must be punished. That’s why strong criminal laws have existed to punish people who engage in these malicious acts. There have been a series of successful prosecutions of corporate criminals in the fallout from the scandals of recent years, but all have been for intentional acts that were already illegal before Sarbanes-Oxley. It is now possible for chief executive officers and chief financial officers to be sent to jail when they have done nothing wrong, have no prior knowledge of wrongdoing, and have not been negligent.

As a result of the law’s costly regulatory burdens and stiff civil and criminal penalties for unintentional corporate behavior, American capital markets have seen a competitive decline marked by a steady flow of foreign initial public offerings. The year 2006 marked a milestone in the decline of American capital market supremacy — the New York Stock Exchange, the world’s leader before Sarbanes-Oxley, dropped to third in the global market for initial public offerings, behind London and Hong Kong. The financial secretary of Hong Kong, Henry Tang, recently thanked Messrs. Sarbanes and Oxley for sending so much business his way.

Access to capital is the lifeblood of entrepreneurship and capitalism. By restricting the IPO path, Sarbanes-Oxley has significantly increased the cost of capital, discouraging early stage investments as well as making it more expensive and less efficient for new companies to grow.

The decline of our capital market competitiveness raises the political profile of Sarbanes-Oxley reform, making bipartisan action possible this year. A concerted push for Congress to act could produce a bipartisan consensus for meaningful free-market reform.

When Mr. Oxley was chairman of the House Financial Services Committee, he blocked any consideration of reform. The new chairman of the committee, Rep. Barney Frank, is more open to reform, recently saying that he believes the law “can be relaxed.” Recently, too, the speaker of the House, Rep. Nancy Pelosi, and Senator Schumer made favorable comments about reforming Sarbanes-Oxley.

The challenge remains enormous though. It is obvious to the public that there have not been any large corporate scandals since the law passed, whereas the implementation costs of the law, while considerable, are far less visible.

The good news from this past election was that Rep. Tom Feeney and all 25 cosponsors — 24 Republicans and one Democrat — of a bill to reform Sarbanes-Oxley were re-elected. The bill was the strongest Sarbanes-Oxley reform legislation introduced in the 109th Congress, and apparently there were no political repercussions for supporting it.

Sarbanes-Oxley is now threatening to do what the terrorists tried and failed to do on September 11 — undermine America’s financial markets. Americans care about capital market supremacy and they care about entrepreneurship. It’s been half a decade since Sarbanes-Oxley was rushed into law. Congress must do something about it.

Mr. Kerpen is policy director of Americans for Prosperity.