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Supply-Side Bush Must Raise Some McCain


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Larry Kudlow

Pollster John Zogby’s early line results for the South Carolina primary show that George W. Bush is indeed in a heap of trouble. Zogby, who called the New Hampshire primary results nearly to the point, now has Bush 5 percentage points behind McCain for the South Carolina contest. Big trouble for the anointed one.

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Of the numerous things that Bush must do to effectively compete in this race, he has got to both clarify and expand on his policy message. This is a clear conclusion from the New Hampshire exit polls, which show that even on the tax cutting issue — arguably Bush’s clearest distinction with McCain — Bush only beat the Arizona senator by a measly two percentage points.

And on the Internet tax question, where 72% of the New Hampshire voters said no to Net taxation, McCain cleaned Bush’s clock by 48% to 30%. And New Hampshire polls showed that 79% of the voters believe that campaign finance reform will help the electoral process. On this point McCain beat Bush 56% to 20%.

Is W. capable of some mid-course policy message adjustments? Here are a few suggestions: First and foremost Bush needs to make it clear that he is the Reaganesque tax cutter, while McCain has nothing better than a balance-sheet debt reduction plan that would in fact not stop federal spending increases and would do great economic damage with a sinking U.S. dollar and rising interest rates.

Bush has to reach out to the new investor class. He must connect with the 80-million plus shareholders by proposing to reduce the capital gains tax and index it for inflation. He should also propose a substantial increase in Roth IRA savings accounts, and remember that investor class members are strong believers in business profits, since profits hold the key to the future retirement value of their portfolios.

So Bush should propose a significant 10 percentage-point reduction in the corporate tax rate, bringing it to 25% from the current 35%. He should also lower the corporate capital gains tax rate as well as moving to cash expensing for the rapid depreciation of business equipment investment.

Bush should shower McCain with tax cut proposals and show that he is willing to use bare-knuckle fighting tactics to achieve these cuts if elected president. He should also put a kitchen-table human face on the tax cut issue: Stay at home parents need tax cuts. School choice families need tax cuts. People without health insurance need tax cuts. Debt-reduction won’t help. Tax cuts will. And in terms of America’s world leadership, if tax cuts are as risky as Clinton, Gore and McCain believe, then why are our main global competitors — Germany and Japan — embarking on Reaganesque tax cutting strategies?

Bush should also make clear his opposition to tobacco tax hikes as well as his opposition to trial lawyers, unlimited product-liability suits, anti-growth environmental regulations, and over-zealous anti-trust regulation. It was Reagan’s program of broad-based tax cuts and de-regulation that spawned this prosperity. Bush needs to say that John McCain is attempting to reverse Reagan policies.

Additionally, Bush should show that he too has government reform credentials. He should propose a thorough-going restructuring of the entire federal executive branch, including the elimination of a number of departments such as commerce and labor. What’s more, he should have a long chat with his sometimes-Texas constituent Michael Dell, chairman of Dell computers. Dell would explain to him the benefits of horizontal corporate structures in the new Internet information age.

This means a scorched-earth policy that would eliminate the hundreds of unnecessary middle levels of government that plague the federal bureaucracy and cost the taxpayers plenty. Every American business has gone through this restructuring time and again. Bush should make it clear that he will generate gales of creative destruction throughout the bloated federal government.

Meanwhile Bush should strengthen his Internet tax policy from a 5-year moratorium to a complete moratorium, and he should argue that fairness means that land-based retailers and businesses should seek a sales tax revolt throughout the country.

Finally on taxes, Bush should make it clear that his tax-rate reduction plan is merely the first step of a bolder vision that will at least lead us back to Reagan’s old 28% top rate.

Also aiming at the investor class, Bush should be more specific about his ideas on reforming Social Security. He should emphasize that the Trust Fund surpluses can be rebated back to individual workers through personal retirement accounts, and he should also declare that future prosperity will permit actual payroll tax rate reductions. Payroll taxes are the most onerous tax burden for 70% of the American workforce. He needs to champion the interests of these overtaxed workers.

Zogby polling surveys, by the way, indicate that taxpayers believe they are overcharged and deserve a rebate. Bush should use this language to connect with taxpayers. Thus far, however, his tax cutting message is simply not getting through.

George Bush must link his vision of compassionate conservatism with this sort of bolder and broader-based tax-cut thinking. He should hit McCain hard by emphasizing that balance-sheet Republicanism does nothing for those who have not reached — or even those who are just approaching — the margins of prosperity.

After all, if John McCain pays down all the U.S. debt, those cash proceeds will go to the biggest holders of our debt, namely countries like the Peoples Republic of China and Japan, or the huge mutual funds spread across the country. But ordinary Americans — Main Street Americans, small business people, Hispanics, and other groups who wish to own a piece of the rock — will not derive any tangible benefits from debt repayment.

Bush needs to make these points over and over: Whenever Republicans run on supply side tax cuts they win. It’s an optimistic, inclusive growth and prosperity message. But when the GOP lapses into arcane discussions of debt deficits, balance sheets and fiscal Calvinism, they lose.

And he needs to show spunk, intensity — even emotion — in order to convince voters that he is the true heir to Reagan conservatism.



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