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A Super Tax Hike Spells Disaster
Better to fall back on the trigger.


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Larry Kudlow

And the GOP is in danger of losing the narrative. Most of the noise is coming from Democratic proposals for higher taxes, while Republicans have not taken any entitlement-spending-cut scalps.

In all likelihood, Hensarling will succeed in his conference with the idea of making the Bush tax rates permanent in return for about $300 billion of loophole-closers. The deeper-tax-rate-cut Toomey reform doesn’t seem to be gaining traction.

Trouble is, so called tax reform would probably be handed over to the tax-writing committees in the Senate and House for a decision next year. At deal-time this year — if there is a deal — we won’t know what the tax-rate picture will actually look like. At least that’s a risk. But it’s possible in a worst-case scenario that personal-deduction limits will be hammered out up front, without any assurances of lower tax rates next year.

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All this leads me back to this question: Where are the super spending cuts? Nowhere. So why not fall back on the across-the-board budget-cutting trigger known as sequestration? That’s the $1.2 trillion backup plan if a $1.5 trillion deal cannot be reached. (Hensarling called the $1.2 trillion backstop very important.)

Then at least some spending will be cut. And the trigger is probably better than a deal that uses Iraq and Afghanistan spending cuts that would happen anyway or fiddles around with the current-services baseline from which reductions are measured.

For defense hawks who object — since 50 percent of the trigger would come out of national security — any spending measures would have a shelf life of only one year: 2013. After that, new presidents and Congresses will do what they will.  

In another interview, congressman Ron Paul (now in a dead heat for first place in Iowa polling) told me the GOP should forget tax hikes and trigger $1.2 trillion in spending cuts. Out on the campaign trail, Newt Gingrich agrees.

But for investors and people in business, a super tax hike would be the worst possible outcome. So take the spending-cut sequestration now, and then fight the real battle in November 2012. That’s better than a supercommittee deal at any cost.

Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.



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