Meanwhile, 88 percent of the bill goes to tax cuts — where people get to keep their own money and where there are some significant incentive-effects on the supply-side.
It’s not a panacea. Hopefully broad-based flat-tax reform will materialize in the next few years, along with entitlement reform and deep spending cuts. But it is worth noting that late Thursday night, according to the Washington Post, negotiators removed more than 70 temporary programs from the bill.
For those conservatives who are still complaining, I urge you to reconsider the importance of marginal tax-rate incentives for the economy. Tax-rate increases will depress growth and worsen the budget deficit. There’s no way America’s financial position will improve without economic growth, nurtured by low tax-rate incentives. And if the compromise tax plan had been defeated, the economy would have been held hostage for as much as six months, before the implementation of some kind of new plan to extend the Bush tax cuts through the complicated budget process.
In this sense, the tax-cut compromise does far more good than bad. A new batch of statistics shows recent economic improvement: rising retail sales and industrial production, a jump in the Index of Leading Indicators, and lower jobless claims. The trick here is to nurture the new economic improvement, not snuff it out with higher taxes.
In the new session of Congress — which will feature a true Tea Party GOP conservative majority — new spending-limit policies can fill in the blanks left by the tax deal. But if President Obama has the acumen to see that a pro-growth economic policy is tied to low tax rates, the GOP should take great care not to cede that message and lose the economic-growth high ground.
A great battle will be joined over the spending, taxing, and regulatory mandates of Obamacare, which is probably the biggest job-killer of all. Conservative reformers in the new Congress will force this fight, along with tax, spending, entitlement, and monetary reform. Behind all this, however, the new Tea Party GOP must maintain a message of economic growth and prosperity.
Crankiness is no substitute.
Larry Kudlow, NRO’s Economics Editor, is host of CNBC’s The Kudlow Report and author of the daily web blog, Kudlow’s Money Politic$.