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Hastert has solid economic ideas. Bush should listen.


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Larry Kudlow

House Speaker Dennis Hastert tends to operate behind the scenes. He’s not one to make long public speeches or bask in the Washington glow. His image is more of a legislative tactician than a heavy thinker.

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But it turns out that Hastert has developed a very clear set of opinions on domestic and economic policy, all of which he reveals in his just-released book, Speaker. In particular, the book has an excellent pro-growth, free-market, pro-competition policy chapter that covers taxes, education, healthcare, energy, and tort reform.

In every case the speaker comes down on the side of the people and markets — not the government. On medical care he favors health savings accounts. On education he supports magnet, charter, or private schools. On energy he suggests full development of coal, oil, and gas reserves. On trial lawyers he proposes legislative reform to limit class-action lawsuits, especially medical liability and asbestos suits.

If Kerry takes the White House with Senate coattails in November, this worst-case scenario still leaves a Republican House. Hopefully it will act as a bulwark against galloping statism and a growing government footprint on the economy.

Hastert reassures that the House will do just that. He has some great conservative lieutenants in people like Tom Delay, Chris Cox, and David Dreier. And let’s not forget that House Ways & Means chair Bill Thomas snatched victory from the jaws of defeat in the 2003 tax-cut bill — legislation that miraculously delivered a 15 percent marginal tax rate for capital gains and dividends, along with a speed-up in the implementation of lower marginal rates on personal income. That tax reform is what really launched the economy into full-scale recovery. It may well be President Bush’s savior come November.

Speaking of taxes, Hastert has some very interesting pro-growth ideas. He correctly argues that American jobs move overseas in part because of excess taxes and regulations imposed on U.S. businesses. He also notes that U.S. products are encumbered by corporate taxes and employment taxes, both of which add measurably to a product’s cost and price.

“Taxes account for between 23 to 27 percent of the cost of our goods and services,” he writes, “but when our products go overseas — to France, Germany, or Japan — our taxes stay embedded in our goods or services.” European countries, however, rebate their tax burdens to the employing companies, thereby giving them a competitive cost advantage on the world market. “Our widgets have a tax burden,” says Hastert. “Their widgets don’t.”

His tax-reform paradigm looks like this: “For us to return capital and jobs to the United States, we’re going to have to change our present tax system and adopt a flat tax, a national sales tax, an ad valorem tax, or VAT. . . . it’s one of the most important things we can do over the next few years.”

Hastert adds that homegrown U.S. labor costs are excessively high for three reasons: taxation, litigation, and regulation. He also notes studies showing that Americans spend nearly 6.1 billion hours on their taxes annually, and that two-thirds of taxpayers believe the system is far too complex. No one knows just how big these wasteful costs really are, but we are talking about a huge chunk of change.

Hastert doesn’t exactly come out for the abolition of the IRS, but he does think it would be a great thing to do down the road. The speaker cites Rep. John Linder (R., Ga.) and his national sales tax proposal. He also cites Michael Burgess, a Republican doctor from Texas, who has introduced a bill that would replace the income tax with a flat tax over a three-year period.

Either of these proposals would enhance productivity and grow the economy more rapidly, doubling national output over the next fifteen years. “The answer is to grow the economy,” writes the speaker, “and the key to doing that is making sure we have a tax system that attracts capital and builds incentives to keep it here instead of forcing it out to other nations.”

Looks like we have a powerful supply-side mole in the U.S. House of Representatives. The former high-school teacher has already surprised many with his strong management skills and legislative acumen. This is a man who is interested in getting things done rather than hogging the klieg lights on television. A former wrestling coach, he’s the quintessential team player. He reminds me of another son of Illinois — Ronald Reagan.

Speaker is a must read for all of us, but hopefully President Bush will have a chance to turn its pages before his crucial speech at the Republican National Convention and the last leg of the 2004 campaign trail. The plain-speaking Midwesterner has some solid ideas for the Texan’s second-term agenda.

— Larry Kudlow, NRO’s Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC’s Kudlow & Cramer.



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