The latest Gallup poll pegs President Obama’s approval at a new low of 41 percent. That adds to the thought that the winner of the GOP presidential-primary sweepstakes is going to be the next president.
And inside that Republican contest, the policy pendulum is swinging toward pro-growth, flat-tax reform. A new agenda. With Herman Cain’s 9-9-9 plan and the announcement of a Steve Forbes-type flat tax from Gov. Rick Perry, the GOP flat-tax-reform competition is dominating the headline news.
While President Obama stumps for huge tax hikes — on incomes of $200,000 to the millionaire and billionaire level — and demoralizes businesses and entrepreneurs with his populist attacks on success and risk-taking, the GOP is fast coming up with a much better idea.
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The handwriting is now on the wall. A huge part of the 2012 campaign will be pro-growth tax reform versus “fairness,” redistribution, and soak-the-rich. In a stalled-out economy, I’ll take the supply-side bet anytime. Pro-growth, flat-tax reform is going to win.
The stock market gets this. The flat tax is bullish. In late September, Herman Cain trumpeted his 9-9-9 flat-tax/fair-tax hybrid reform plan at the Orlando, Fla., debate. Since early October, stocks have come out of their funk, rising 12 percent.
Coincidence?
Part of the stock rally is based on strong corporate earnings, the mother’s milk of stocks. So far for the third quarter, almost three-quarters of reporting companies have beaten estimates, with overall profits coming in about 14 percent ahead of year-ago. And investors are hopeful that Europe will solve its sovereign-debt and banking woes.
But the sudden stock rally could also be discounting a new GOP growth plan that will replace the dreary Obama tax-the-rich mantra.
Investors read the political polls as well as the earnings results. And investors sense that a rejuvenated Republican party — with candidates competing for the most pro-growth, incentive-oriented tax reform — bodes well for America’s economic future. So with the election a little more than a year away, stocks may be thinking about a new Reagan-like era in economic policy.
An era when success is rewarded, not punished. An era when consumption is taxed more while saving and investment are taxed less. An era when capital formation rises from the ashes to produce a new surge in productivity, jobs, and real incomes. An era when simplicity trumps $450 billion in compliance costs; when a new Republican party means business when it says it will drive a stake through a tax code that has been a ball-and-chain to the economy.
Add to that widespread agreement among the GOP candidates for strict spending limitations; a regulatory rollback; an unleashing of Americas oil-and-gas shale revolution (which will give us energy independence); and the likelihood that a Republican president will stop the Federal Reserve from devaluing the dollar and flooding the financial system with an overload of new money. All the GOP frontrunners would replace Ben Bernanke, and at least Cain and Perry have hinted at re-linking the dollar to gold.
And all these policies mark a return to the Reaganesque principles that rejuvenated free-market capitalism 30 years ago and could ignite an economic-growth surge once again — even amidst all of today’s doom and gloom.
Herman Cain’s 9-9-9 is not perfect. But it embodies important growth incentives along with simplification. Rick Perry’s plan comes out this week, and it’s likely to feature a single tax rate that resembles Steve Forbes’s 17 percent flat tax for individuals and corporations.
Both Perry and Cain include 100 percent cash expensing for new-business investment. Both Cain and Perry would eliminate the double tax on capital gains and other investments, as well as the double tax on the foreign earnings of U.S. companies. Cain recently amended his plan so that people living under the poverty line will pay a zero personal tax, while businesses locating in “opportunity zones” may get tax-free investment and even tax-free wages. This borrows from the late Jack Kemp’s empowerment-zone idea.
Earlier in the campaign, Jon Huntsman came out with a flatter tax, with a top rate of 23 percent and three brackets, which is similar to a number of Republican congressional proposals that would cap the top rate for individuals and corporations at 25 percent. Now it remains up to Mitt Romney to unveil a much bolder tax-reform measure that can compete effectively for the Republican nomination.
And all these ideas would represent a complete reversal from Obama’s vision of taxing the rich and penalizing successful small-business owners. In fact, on taxes, regulations, spending, and monetary policy, the expected GOP economic platform will represent a total repudiation of Obamanomics — a stark contrast for voters.
Stock markets and the general public are taking notice. GOP tax-reform competition will produce an outstanding pro-growth plan. And that is going to defeat Obama in the ultimate competition next November.
From The Wealth of Nations re: flat taxation:
“The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”
Exactly how much more? Combining state, local, and federal tax, those with "millionaire" incomes pay at or slightly above 50% of their income as tax (depending on state). Compared globally, the US has the most progressive tax system in the world. Hence "rich" here pay more that their fair share than anyone else on the planet. But, enough is really never enough if you have politicians whose only purpose is to spend and spend.
Do we spend enough to turn the poor into middle class? If so, are we negating the middle class and therefore making the poorer? Shouldn't we spend more on them as well. Does anyone include in the calculations of what has been spent on the poor how much of the combined charitable contributions go to them from both churches and other institutions?
Since LBJ, we have spent $ trillions on the poor, with apparently little or no big positive impact. Maybe it's time to take the never ending stream of $$$ so readily taken by the radical liberal progressives and let someone else deal with the poor. They've had their time, and have been an utter complete failure.
Steve Forbes is a dam hypocrite. He helped with Chris Christie's campaign for governor and vilified the genuine conservative in 2009--Steve Lonegan (Americans For Prosperity,NJ director).
Steve campaigned for a flat state income tax and Chris Christie and Steve Forbes poo-pooed it!
Now Steve Forbes is helping Perry with his tax program.
What gives with these phonies? Is it any wonder that the Tea Party was started? The fact is, the American Taxpayers are sick of the wishy-washy, say-one-thing-do-another representation of the pay-to-play candidates.
Larry, the flat tax, you really think you could sell that to the general public? It may well be immensely popular on Wall Street and among the income elite of this country, but on Main Street it's a flat out political non starter, and a blessing to every Democrat running. Cordially, Bill
Romney won't support a flat tax. In 2008 he called it "unfair" and in 1996 he repeatedly attacked Forbes flat tax in full page newspaper ads as "a tax cut for fat cats" like the "Kennedys, Rockefellers and Forbes."
Here's what Adam Smith (Wealth of Nations) had to say regarding flat taxes:
“The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, NOT ONLY IN PROPORTION TO THEIR REVENUE, BUT SOMETHING MORE THAN IN THAT PROPORTION."
The last '9' of the Cain plan is too dangerous to contemplate. In the unlikely event that the next Congress decided to do away with the current tax code, it would have to be transitioned out to protect all the economic decisions made in contemplation of the current code. Think NOLs that have a seven year life as one example. Two years down the road, the next Congress would be presented with huge deifcits and a shiny 9% sales tax to play with. Guess what happens. Worst of all possible worlds, sure as certain with the consumer faced with combined sales taxes approaching 20%.
A little flat tax history in one man's corner of the states: Steve Forbes ran on it in 2000. Then supported Chris Christie for governor while Mr. Christie belittled Steve Lonegan (the true conservative gubernatorial candidate in 2009, now NJ state director for Americans for Prosperity) who supported a flat state income tax, now Forbes is supporting Perry and helping him craft a flat tax program. And Romney endorsed Christie in that race. So Perry and Romney are close, whether they want to be or not.
Everyone knows a flat tax of some kind is fair. We already have an example of flat tax: state sales tax. Most states have it. And sales tax doesn't discriminate based on income. You buy something, you pay it. Even fast food is taxed.
So if we, THE TAXPAYING PUBLIC, really want a change, we will support a flat tax initiative. The problem isn't the tax, the problem is the 'taxers,' per se--the government fat cats, who will stop at nothing to spend our nation into oblivion, giving the public trust away to illegals and foreign countries who hate us, and to raise taxes when they don't have enough money to do whatever they want.
Neil Boortz' Fair Tax is the best one yet. No exceptions. I wonder who Neil is endorsing...?
"Cain recently amended his plan so that people living under the poverty line will pay a zero personal tax, while businesses locating in “opportunity zones” may get tax-free investment and even tax-free wages."
And this is exactly the part of Cain's plan that galls me. Every citizen derives benefits from being an American. Every citizen should be required to pay something for those benefits.
Why should these people get the benefits of citizenship while paying nothing for them? Are they not also protected by our military? Are they not also a beneficiary of the roads and other infrastructure? Do they not also have redress through the courts and have representation in Congress? Do they not also have a vote and a say in how this country is governed?
I may be a heartless but my experience is that people who have a stake in the outcome tend to be more concerned about what is happening.
When some fool squanders his money then what do I care, it costs me nothing? When some fool squanders my money I care. Surely even a nitwit like you can understand this most basic of human behaviors.
I am not suggesting that the poor have to pay a huge amount but something is needed. There should be some minimum tax that everyone pays just by virtue of being a citizen. This is the least that should be expected of anyone.
I will bet you any sum you care to wager that if everyone were paying at least something then the government would have a lot harder time selling its spend and tax agenda.
It is also very easy for those who pay nothing to vote higher taxes on those who do. What is their incentive to do otherwise? I am sure you are more than willing to be bribed by some politician who takes money from someone else and gives it to you.
Do you think that people who pay nothing to support the government should have a vote in how the money is spent? They contribute nothing but demand to tell those of us who pay the bills how to spend the money.
When I am invited over to a friend's house for dinner I do not have the gall to demand to chose the menu or rearrange the furniture to suit my taste. He is paying and he gets to decide.
If I invite someone to my house as my guest I am not going to tolerate him demanding I change my table and rearrange my funiture to suit him, an invited guest, at my expense. Such a guest will soon find himself on my doorstep.
Let those who demand a say pay something for the right to have that say. If these people wish to pay nothing to support the government them let them accept what we who pay the bills will offer. These days not only are beggars choosers but they are demanders and the politicians pander to them at our expense.
BTW, being poor is a great motivator to do better. I have had times when I thoughy I would lose everything. It sure focussed my attention. And now that I pay substantial taxes to the government I tend to watch closely what they do.
Also, Cain wants to create tax free zones for people who are working so what about them? Why should they get off scot free just because their company is located in some specific area? They use the roads and infrastructure and everthing else we do but they will get it for free while we must pay for it for ourselves AND them. Where is the equal treatment before the law?
Also, currently %46 to %48 percent of people pay no income tax at all. The reason that this has happened is because politicians have been buying their votes by saying vote for me and I will enrich you at the expense of others.
I may be heartless but you are a fool and a doormat.
You know, given the choice I would rather be thought a fool and a nitwit rather than heartless and without empathy for those worse off than myself. I suppose we differ on this and much else. Cordially. Bill
In addition, if the break point is not a gradual one it would create an incentive to stop earning at the poverty line as crossing it would cost. This isn't even a bill yet and it is being recomplicated already where the point is to simplify.
Cain is still my pick for the nomination, but that is in spite of 9-9-9, not because of it.
Tax reform and federal spending cuts will be like a pot of coffee for business growth. We need both. Finally the GOP candidates are getting their act together.
I certainly hope Romney will propose bold tax reform with Cain and Perry. If he's not willing to go there, he will start to see his nomination chances slipping away.
A flat tax is only "regressive" in comparison with a highly progressive tax rate structure, which is what we have now. Under a flat tax, the guy who makes ten times as much money pays ten times as much in taxes. But that's not enough for Democrats. They want that same guy to pay twenty or thirty times as much in taxes -- which is off-the-charts unfair and counterproductive.
That quote from The Wealth of Nations that someone posted -- it assumes a substantial percentage of the U.S. population is literally dirt poor, scrounging for food. That's not how it is. When 47% of Americans aren't paying federal income taxes, you know with moral certainty things are out of whack. Besides, under anybody's plan, the truly needy will get a break.
As usual, Mr. Kudlow, you are right on the mark. Thank you for another illuminating piece.
It's just as likely that the stock market has risen on the gradually increasing certainty that Ghaddafi would be found and killed. Sure enough, that happened last week.
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