Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

An Undervalued NAZ?


Interesting take by Quentin Hardy, Silicon Valley bureau chief of Forbes magazine, on last night’s Kudlow & Company.

“I think, you know, with things going to a record at the S&P 500, it’s an excellent time to look at the Nasdaq again and say ‘Dow’s recovered, S&P’s recovered.’ Nasdaq won’t go to its old high, but maybe it’s the undervalued sector at this point.”

It Pays to Stay in School


With all the liberal criticism of the Bush economic boom about wage inequality, what’s being overlooked is education inequality and its impact on wages:

As I pointed out in my column today, within our historically low 4.5 percent unemployment rate, there’s a 7.5 percent unemployment rate for those with less than a high-school diploma; a 4.5 percent rate for high-school grads, and a mere 1.8 percent rate for those with college degrees or better.


- Americans who don’t finish high school earn roughly $429 a week.
- Individuals finishing high school pocket $602 a week.
- Americans with a bachelor’s degree or higher take home $1,030 a week.

So it clearly makes financial sense to stay in school. What makes no sense at all is trying to solve wage inequality by penalizing our most successful earners and thereby hindering economic growth.

If You Really Want To Make U.S. Companies More Competitive . . .


“If the Treasury Department and Congress really want to improve American competitiveness, they must continue the Reagan tradition by bolstering our corporate tax competitiveness.”

Click here to continue reading my latest syndicated column.

Brainiac Immigration


Somewhere in this massive immigration deal there’s a big increase in the number of visas for high skilled, well-educated individuals. Sen. Lieberman told us last night that it would go from 65,000 to around 180,000. That’s a good thing.

In addition, foreign students who come to U.S. universities could stay and work without being included in that visa total. That could mean another 100k or so’”also very good.

Smart, hardworking, ambitious men and women from around the globe’”physicists, engineers, etc’”want to work and raise their families here. We should welcome them with open arms. There’s a shortage of workers in the marketplace with these valuable skills, so a more liberal H1B immigration policy would address this and be extremely pro-growth.

The only downside on this as NR’s Ramesh Ponnuru told me is that immigrant engineers have to be registered to one company. I don’t know why that’s necessary. Why not just put them in the general pool of high skilled workers and let them pick and choose which jobs they want? If they’re in the job pool, and they change employers, they could simply re-register.

We ought to encourage brainiac immigration, roll out the welcome mat’”not put up obstacles.

So, You Want To Make U.S. Companies More Competitive?


There’s a big hullabaloo going on down in Washington right now about making America more ‘competitive.’ Much of the hubbub centers around President Bush’s powerful Treasury man, Henry Paulson. He’s been busy holding conferences and writing various op-ed pieces on the subject.

If the Treasury Department and Congress are really serious, and really want to do something concrete and long-lasting to dramatically improve American competitiveness, then let’s cut to the chase. Let’s aim for the heart of the problem. Any lasting change requires rolling up our collective sleeve and dealing with the over taxation of American businesses.

We should not bat an eye at reducing the 35 percent federal corporate tax rate.

And, while we’re at it, we should cut the corporate capital gains tax rate as well. Loews CEO James Tisch, who is justifiably concerned about our long-term competitiveness, is pushing this latter proposal. He believes that hundreds of billions of languishing corporate asset dollars would be unlocked and reinvested if this were to occur. He’s right. The result would be an inevitable infusion of new oxygen into the corporate bloodstream. It would create new businesses and greatly expand existing ones. All this would of course create tens of thousands of new jobs for American workers, not to mention a tidal wave of new tax receipts at Treasury.

Right now, the US and Japan are the flag bearers of the highest corporate tax rates in the world. (When one includes state taxes, the US rate is actually higher’”40 percent). Yet, the EU average according to Washington policy analyst Dan Clifton is only 27 percent. And virtually every country around the globe is slashing away at their corporate income tax rate. Ireland’s booming economy boasts a corporate tax rate of only 10 percent. Even France comes in lower than the US. It’s quite clear that we have put ourselves at a significant competitive disadvantage in a very palpable, real sense.

High US corporate tax burdens are reducing company investment returns to shareholders and impeding corporate management from a truly competitive after tax return on assets.

What’s more, current US tax law double taxes companies on the profits they make in the US and overseas. Not so in Europe. Across the Atlantic, companies are spared this burden through tax rebates. But our businesses are stuck with this double tax. It not only reduces our competitiveness, it also winds up forcing companies to leave their profits sitting idly overseas to avoid getting hit up twice by the taxman, rather than repatriating them back home for greater domestic investment.

At the end of the day, this country’s bold entrepreneurs understand full well that on an after-tax basis, the money returned from an investment must be significantly greater than the original money invested in order to justify the risk.

The fact is, no so-called ‘competitiveness action plan’ can be complete without full-scale corporate tax reform. Reforming the corporate tax code is the single biggest positive step the government can take to improve American competitiveness.

Showdown in South Carolina


Rudy Giuliani parlayed a Reagan moment in last night’s GOP debate and therefore probably came out the winner. Remember Reagan in New Hampshire in 1980? The ’I paid for this microphone’ line? That really helped establish the Gipper as the strong man in the GOP field then.

Ron Paul gave Rudy a wonderful opportunity to slam the idea that, somehow, US engagement to enforce the Iraqi UN sanctions and the no-fly zones was really responsible for the 9/11 attacks. Ron Paul ran with the leftwing ‘I hate America’ line and Rudy pounded him for it.

Undoubtedly, McCain , Romney, and others would’ve done the same, but Rudy got there first and scored heavily. Good for him. Rudy also had some nice shots at Hillary’s socialist, anti-market stuff.

Senator McCain did reasonably well, as did Governor Romney. And despite an entertaining performance by Governor Huckabee, I still don’t think he can make it into the top-tier.

Which brings up another issue: With ten candidates crowding the stage and cluttering up the airwaves (and all the flip-flop, gotcha! moments), the GOP’s strong on defense/security/Iraq message, as well as the pro-growth, low tax message that seemed clear in the first debate became diluted in the second.

As Wall Street Journal columnist John Fund told me, what people really want to know from the candidates is where will they lead the country? And how’s my 401K wealth outlook? This didn’t really get through last night as it did in the first debate.

Perhaps most important were the two people not on stage in South Carolina’”Fred Thompson and Newt Gingrich. Several insiders tell me they are going to run. Sen. Thompson probably declares in June, while former Speaker Gingrich holds off until September. That will make five major candidates in a very strong field.

Against all odds, I still believe the GOP recaptures the White House next year.

Stock Market Thoughts from Michael Cuggino


Excerpt from last night’s conversation with Kudlow & Company friend, Michael Cuggino. He’s the president and portfolio manager at the Permanent Portfolio Family of Funds, where he manages the five-star Morningstar-rated Permanent Portfolio Fund (PRPFX).

KUDLOW: You’ve had this phenomenal run here. You have a great record. What is the best investment strategy? What are you doing now? Because nothing can keep going up in a straight line forever.

MR. CUGGINO: Well, I agree, Larry. As I’ve said before on your program, I think the economy’s a lot stronger than people have given it credit for. We may be in a slowing phase, but I still think all in all, the positives way outweigh the negatives. And we’re going to continue to see stock prices trend higher through the rest of the year.

Having said that, we’ve had a great run the last two months. The major indexes are all up between 5 and 10 percent. Probably closer to 10 percent. The Nasdaq, the S&P 500, the Dow, nothing grows to the sky, and so we’re going to have some consolidation, some profit taking, no question. And investors need to keep that in mind in their long term investing profiles.

Investors should be diversified among a lot of different industry groups and stocks. They should also hedge some of their bets in some other areas. Bonds, non-US stocks and bonds, and also some commodities and precious metals because those markets have done very well, too. And investors need exposure to that when you have the inevitable downturn in stocks.

KUDLOW: So, all right. So you want people to go out and buy some bonds, you want them to buy some commodities. Commodities have been a very, very hot performing sector. Do you want them to take any chips off the table? There’s no law against taking profits.

MR. CUGGINO: Definitely not. And for people that want to do that, I think the bond market’s not rewarding investors for going out too long on the yield curve, you know, five, 10 years or whatever. The real yield is in the short term paper. So the ultimate safety play is to put it in cash, put it in short term Treasuries for a while, wait out things till maybe there’s a better buying opportunity and then get maybe back into stocks. So that’s certainly one area to take a look at.

The Disciplined Investor Podcast


Click here to listen to the podcast I taped yesterday for The Disciplined Investor.

We discussed a number of topics including the health of the stock market and economy, the global spread of capitalism, the dollar vs. the Euro, and the 2008 presidential horserace.

(Fast forward to 6:40 for the beginning of the interview.)

“The Anger Of The Left”


From Thomas Sowell’s latest column:

…All sorts of people can have all sorts of beliefs about what tax rates are best from various points of view. But how can people work themselves into a lather over the fact that some taxpayers are able to keep more of the money they earned, instead of turning it over to politicians to dispense in ways calculated to get themselves re-elected?

The angry left has no time to spend even considering the argument that what they call “tax cuts for the rich” are in fact tax cuts for the economy.

Nor is the idea new that tax cuts can sometimes spur economic growth, resulting in more jobs for workers and higher earnings for business, leading to more tax revenue for the government.

A highly regarded economist once observed that “taxation may be so high as to defeat its object,” so that sometimes “a reduction of taxation will run a better chance, than an increase, of balancing the Budget.”

Who said that? Milton Friedman? Arthur Laffer? No. It was said in 1933 by John Maynard Keynes, a liberal icon….

Click here to continue reading.

Tax Hikes Ahead?


WSJ Washington Wire headline yesterday:

“Grassley Predicts Huge Tax Increase on Wealthy”

Sen. Chuck Grassley says the top tax rate would have to jump to 46 percent from 35 percent to offset costs of a House Democratic plan to “fix” the AMT. In a floor statement, he said the result would be a ’shocking’ tax increase for the wealthy.

Let me also add that rumors are circulating that the House plan would take the capital gains tax to 31 percent from 15 percent. Yes, these penalty rates would hurt the most successful earners and investors.

But there’s a bigger point here: This would significantly reduce the amount of capital supplied to the economy for all manner of growth and job creation.

Tax something more, you get less of it.

Big tax rate hikes on upper-end earners and on capital gains would raise capital costs and reduce investment returns.

Remember, you can’t have a job without a business to create the job. And you can’t have a business without the capital to finance it. As a result, high tax rates on capital damage the outlook for all businesses and wage earners throughout the economy.

Think of it this way: You can’t have capitalism without capital.

Monday Night Lineup


On CNBC’s Kudlow & Company this evening:

MARKETS, THE ECONOMY & A HARD LOOK AT THE CORPORATE CAPITAL GAINS TAX…Our market mavens tonight include Jason Trennert, chief investment strategist at Strategas Research Partners; Jeff Matthews, general partner of Ram Partners, LP; and Gary Shilling, president of A. Gary Shilling & Co.

Loews CEO James Tisch will also be aboard and offer his unique perspective on the issue of the corporate capital gains tax.

SUNDAY UNSPUN…Frank Newport, editor-in-chief of The Gallup Poll will sift through all the latest media distortions.

YOUR MONEY, YOUR VOTE…We’ll take a look at Senator Barack Obama, taxes and more with Kim Strassel, member of The Wall Street Journal’s editorial board and Jared Bernstein, economist at the Economic Policy Institute.

GOTCHA POLITICS…Ms.Strassel and Mr. Bernstein will discuss.

HOUSING…Housing and Urban Development Secretary Alphonso Jackson will weigh in with his insights.

Please join us at 5pm ET on CNBC for another free market edition of Kudlow & Company.

Same Old Song and Dance


Obama says he’s the candidate of fresh, new ideas, but what’s so new about tax hikes on the rich?

And what’s so new about bailing out Detroit’s vastly overgenerous pension and health benefits? That’s a UAW union bailout.

And how to explain Obama’s repeated assertions on ’This Week with George Stephanopoulos” yesterday that when it comes to Social Security reform, ‘everything should be on the table””everything, that is, except for privatization?

No surprises here from the Democratic contender.

Senator Obama also told Mr. Stephanopoulos that a part of him has always been ‘a little bit conservative.’

Yet, nonpartisan National Journal’s analysis of voting records reveals Obama to be the most liberal of all the Democratic presidential hopefuls. His score was an 84.3. That means he’s more liberal than over 84 percent of his Senate colleagues’”more liberal than Hillary, John Kerry, Harry Reid and Russ Feingold.

Nothing new here so far.

The Dems’ First Four Months


Excerpt from last night’s Kudlow & Company.

KUDLOW: The House has passed a budget resolution for the next five years. The Senate is passing one too. It’s going to go to conference. That does not include extension of the Bush tax cuts for investors, capital gains, particularly, and dividends also. That’s going to be a tax hike. What’s your take on this? Is there any recourse left, or is this just going to go through?

REP. ADAM PUTNAM: Let me give you the highlight video here. The Democratic Congress, in their first four months, are retasking our intelligence agencies to track polar ice caps instead of al-Qaeda. They’re trying to send a message to the Iraqi government by cutting off funds for American troops. They are raising taxes by the largest increase in American history. The second largest tax increase in American history was done under Clinton’s administration. They are eliminating the rate relief that we have provided for families, for family farmers and small businesses, and most importantly, for investors that are contributing to a mind-blowing, record breaking economy. That’s what they’ve been able to produce in four months.

Raising tax rates slows the economy, diminishes revenues, and widens the budget gap.

Yank the Bank


George Will absolutely blasts the World Bank in his latest column. Will is dead right. We don’t need the World Bank. On top of the billions of dollars in waste and corruption, private capital markets are much more efficient.

From Will’s column:

The kerfuffle over whether Paul Wolfowitz, the World Bank’s president, behaved badly regarding the contract for his companion to facilitate her departure from the bank involves no large issue. The bank’s existence does. The bank’s rationale, never strong, has evaporated.

Born in 1944, at the apogee of confidence in governments and international governmental organizations, the bank’s mission is ”to fight poverty with passion and professionalism.” The great prerequisite for curing poverty is, however, economic growth, and the world has learned, during a 63-year retreat from statism, that the prerequisite for growth is free markets allocating private capital to efficient uses…

The Widening of King Arthur’s Court


Another terrific NRO column by my friend Jerry Bowyer.

Elizabeth MacDonald of Forbes magazine revealed on CNBC’s Kudlow & Co. that she refers to the founding father of modern supply-side economics as ‘Saint Arthur Laffer,’ since his economic reckonings have done so much good for the world. Larry Kudlow likes the monicker, and so do I. But over here at Bowyer Media’s central command, we call him King Arthur. Why? Because Arthur Laffer has both conquered his foes and liberated untold people. (Plus, ‘King Arthur’ sounds cool.)

The realm of King Arthur has done well of late. Last week, the Laffer curve, a much maligned though powerful predictive tool, got another notch in its belt: Tax revenues hit the highest one-day point in U.S. history.

Of course, there’s a bit more to the story. President Bush cut tax rates in 2003, and tax revenues have been climbing ever since ‘” a trajectory the Laffer curve predicts when tax rates are made less prohibitive. The process may seem counterintuitive, yes. But anybody who bet against it lost out.

Today, it’s still the fashion for American pundits and pols to snicker at the revenue-enhancing power of tax cuts. But while they laugh, the world at large is shifting toward what works. First it was Estonia going for a Forbesian flat tax. Then Germany elected the Rhineland’s answer to Margaret Thatcher. That was good for as far as it went, but now France? Yes, the people of Gaul found their inner Charlemagne and put tax-cutting Nicolas Sarkozy into office.

The realm King Arthur continues to widen.

Democrats Dooming Themselves to Defeat


(My latest syndicated column.)

The Democratic Party may be convincing itself that it’s riding high in the polls toward a White House victory in next year’s election. But you know what? On two key themes — taxes and national security — the Democrats may be dooming themselves to defeat.

Watching the two presidential debates, one can’t help but notice the stark differences between each party’s approach to these core issues. And it’s hard to see how the general electorate is going to buy what the Democrats are selling.

To a person, each Democratic presidential candidate wants to undermine the global war against jihadist terrorism — wherever it may be, and especially in Iraq. The Democrats see a civil war in Iraq, where the Republicans view a growing al-Qaida threat. And while Republicans talk about significantly increasing the defense budget and expanding American force levels for all the armed services, the Democrats are hoping for some sort of Iraqi peace dividend upon immediate withdrawal — one that can be re-channeled into higher domestic social spending.

To a person, each Democratic presidential candidate also wants to raise taxes on the rich and roll back President Bush’s tax cuts. The Republicans, however, understand that those tax cuts have propelled economic growth and contributed to a stock market boom. And they recognize that Bush’s Goldilocks bull-market economy — which I call the greatest story never told — relies on extending the investor tax cuts and perhaps even moving forward with a flat tax or national sales tax.

Finally, to a person, each Democratic presidential candidate also has it in for corporate America. The Democrats discuss various punishments for business — especially oil companies, but also drug, utility and insurance firms. Not so for the Republicans, who talk about helping businesses and promoting entrepreneurship in our successful free-enterprise economy.

The differences between the two parties couldn’t be clearer, and next year the voting public will have a very stark choice. But with this election season only two debates old, that choice already favors the Republican position.

Think of it: The Democrats talk about ending “tax cuts for the rich,” all while bashing American corporations. But isn’t this the same tired message that sunk Al Gore, Mike Dukakis, Walter Mondale and Jimmy Carter? It’s never been a winner, and it’s going to help cripple whoever grabs the Democratic nomination next year.

And as former Commentary editor Norman Podhoretz has written, as the Democrats pay too much attention to the left wing of their party, their defeatist, weak-on-national-security riff may have already sunk them in 2008.

Consider this: When the appropriate time comes for a gradual troop withdrawal from Iraq, the voting public is far more likely to want a tough-on-defense president to negotiate the event. Go all the way back to the Korean War. Voters selected Gen. Dwight D. Eisenhower to negotiate withdrawal, rather than the much more liberal Adlai Stevenson. Or recall that in 1968 voters chose the tough-minded Richard Nixon to manage a pullout from South Vietnam, rather than the fuzzy-thinking Hubert Humphrey.

Here’s another example of the ever-widening void that separates each party’s stable of candidates, and of the fact-versus-fiction choice that awaits voters in 2008: House and Senate Democrats are in the process of crafting a five-year budget resolution that leaves out investor tax-cut extensions for capital gains and dividends. They say they are trying to balance the budget and increase tax revenues. Yet the latest budget report unequivocally shows that these very same investor tax cuts have paid for themselves.

Non-withheld income taxes — read cap-gains, dividends and income from small owner-operated businesses — hit a record high of $49 billion on April 24. So far this year, this tax-collection category has shot up 30 percent, while withheld income-tax collections at lower tax rates have jumped 17.5 percent.

In other words, the Laffer curve is working: Lower tax rates lead to higher tax revenues through a growing economy and a larger income base. By removing pro-growth tax cuts, the Democratic budget will actually slow the economy, diminish revenue growth and increase the out-year budget gap.

Ignoring all this, in addition to the reality of a 4.5 percent unemployment rate and Dow 13,000, is a Democratic triumph of liberal ideology over objective empirical analysis.

It’s also a recipe for Democratic disaster about a year and half from now.

Hats off G-Men


Thank God for the men and women in the FBI.

The G-Men struck a big blow for freedom by capturing the Fort Dix terrorists. These jihadists wanted to kill as many American soldiers as possible. Their arrest and capture is a pivotal homeland security event.

Shame on CNN for editorializing in their news report that these jihadists were not hardcore terrorists. That’s insane. As terrorism expert Steve Emerson said on last night’s show, it is unfortunately indicative of an attitude at CNN that sometimes minimizes the threat of radical Islam.

And shame on the Democrats (and handful of Republicans) hamstringing law enforcement’s ability to move swiftly through electronic surveillance. In other words wiretapping, eavesdropping, cell-phone tapping, Internet tapping, etc. These are the essential tools.

We may not be able to stop all the terrorists from getting into the US, but once they’re here, we sure can monitor them electronically. Why on earth they try to tie the good guys hands behind their backs in digging up these jihadists is beyond me.

Make no mistake here: the capture of these terrorists is further proof of why we must give our Homeland Security authorities all the necessary tools to break these evil murderous plots up. We need to give them all the ammunition they need.

At any rate, this is a big win for the FBI. It’s a big win for homeland security. And it’s a big win for this great country and freedom.

Wrong on Taxes, Wrong on Defense


The House passed a budget resolution yesterday that leaves out investor tax-cut extensions for capital gains and dividends. While it does include extension of the kiddy credits and the marriage deduction, it’s actually the investment tax cuts that deliver the real economic growth impact by reducing the tax rate on the extra dollar earned from the sale of assets or the receipt of dividends.

Ironically, the latest budget report clearly shows that these investor tax-cuts have paid for themselves. Remember, non-withheld income taxes hit a record high on April 24th at $48.7 billion dollars. So far this year, this tax collection category has shot up 30 percent. By the way, income tax collections at lower tax rates have jumped by 17.5 percent.

Democrats and the official Washington scorekeepers never acknowledge the Laffer Curve that shows lower tax rates lead to higher tax revenues through a growing economy and larger income base.

What the Dems have done in their budget resolution is to endorse the least growth-sensitive tax cuts and to eliminate the tax-cuts that possess the largest growth impact.

By the way, with congressional Dems once again vowing to end ‘tax cuts for the rich’ and the same tired message coming from the Democratic presidential hopefuls’”Hillary, Obama, Edwards’”the party is crafting a losing election year tax message. Tax cuts for the rich have never worked in presidential elections. (Just ask Mike Dukakis, Walter Mondale, or Jimmy Carter. Or ask Al Gore if you can find him.)

This high tax Democratic message is a key reason why I believe Republicans will recapture the White House next year. The other key reason is the Democrats’ defeatist message on the terror war, jihadism, and Iraq.

High taxes and weak on national security is a losing presidential message.

The Spirit of Sarkozy


All along, Nicolas Sarkozy ran for president in France as a capitalist and a friend of America. He made it very clear that he wants France to move toward a true market economy’”one that creates a more hospitable environment for business, investors and entrepreneurs.

In particular, he hopes to appeal to young people, so they will stop migrating to London and New York in search of wealth creation. Smart, ambitious French expats have been proliferating in Britain and the United States in search of financial opportunities that are denied in abysmally high-taxed France. So, Mr. Sarkozy will attempt to reduce taxes, curb unions, and reform labor laws.

Essentially he wants a new France where it pays to work and invest, after-tax.

Many of the labor restrictions on working will be loosened or removed. He also wants to cut spending, especially the bloated French bureaucracy of socialist planners. Think a dose of Thatcherism’”a freeing of the French economy. Hopefully he will not protect French companies from fierce global competition.

However, Sarkozy still has a dose of protectionism for the EU. This could be a problem. And, of course, he needs a much better national assembly, which has been where the left wing union and crazy socialist parties have thwarted French efforts for decades to move toward American-style capitalism.

The top personal tax rate in France is 49.6 percent, plus a near 20 percent value-added tax. Corporations are taxed at 34 percent.

Of note, in the run-up to the Sarkozy election, the French CAC stock market from mid-March rose 14 percent in Euro terms, and 17 percent in dollars, thereby outperforming the S&P 500’s 9 percent gain in the U.S.

The Sarkozy win also suggests that Ségolène Royal/Hillary Clinton won’t win here in the U.S. It also suggests that Jacque Chirac/George W. Bush (although this is terribly unfair to Bush) will not necessarily weigh down their party’s candidate in the next presidential election.

After watching the debates by Republican and Democratic presidential contenders in the U.S., I believe the low-tax, strong on defense GOP will recapture the White House against the high-tax, defeatist on defense Democrats.

In any event, the Sarkozy story is a good one. It lifts the spirits for freedom-loving capitalists like myself.

“Battle of France”


From the editors at National Review Online:

“…So, if representative democracy works as it is supposed to do, Sarkozy will push through the market reforms that France has needed for at least two decades. He will deregulate its labor market, slim down the public-sector payroll, abandon the symbolic 35-hour work week, reduce public spending from its current 52 percent of GDP, and reform the French welfare state. Friends and admirers of France will hope that he succeeds. Americans will be especially supportive since he has said that with his election the U.S. has a ‘friend’ ‘” presumably he will end the anti-Americanism that has shaped French foreign policy under Jacques Chirac, his old patron and recent bitter rival. But will Sarkozy be able to push through such an ambitious and contentious program against opposition in the streets as well as in the corridors of power?….”

We certainly hope so.

Click here for more.


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