The Corner

Respectful and Loving Opposition to Krauthammer

As I wrote in my last column, “Sell Bonds, Buy Stocks,” I continue to favor the tax-cut package. With all respect to Charles Krauthammer — he’s a brilliant guy, at least three-times smarter than I am on most things, and I love him — his recent column mischaracterizes the tax package.

Republicans should distinguish between tax cuts now (or back in 2003) and massive government-spending stimulus in 2009. The current package would refresh and maintain low tax rates, adding to confidence. So many people around the country and in financial markets expected the tax cuts to expire. Now they won’t. This is good.

We can avoid the train-wreck scenario for the economy and the stock market. We can avoid rolling back marginal tax incentives and draining $600 billion or more from the private sector and handing it over to the government.

Roughly 90 percent of this package is tax cuts. Neither Charles nor other conservative critics of the deal even mention the business tax cuts that are new, including 100 percent cash expensing, which will have a positive effect for job creation (though it should be permanent rather than just one year).

The package’s payroll tax cut for one year is really a demand-side rebate. But at least it keeps money in the pockets of the workforce. That’s not nothing. And extending the AMT is very positive. At $150 billion, this too is not nothing.

Like other conservatives, I worry that extended unemployment benefits will keep unemployment higher than necessary. But this could be funded out of the $110 billion of unspent stimulus funds from the 2009 package. And while the extra spending add-ons for ethanol, wind, and solar power, along with other nicks and nacks, come to $5 billion, they also could be taken out of the unspent stimulus and should not be enough to block the package.

I think conservatives have to keep their eye on economic growth. There’s stuff in the deal that I don’t like, but the overall impact is going to be positive.

The GOP should not go back to root-canal deficit obsession. Next year Paul Ryan is going to lead the charge on deep spending cuts. That’s the best way to lower the budget deficit — not tax hikes.

Root canal doesn’t work. Growth has to be essential to deficit reduction.

When I read Charles Krauthammer’s article carefully, what he really seems to be saying is that conservatives should oppose tax cuts because their growth impact (he acknowledges 1 percent better growth) might reelect Obama. I don’t think that’s good economic or political logic. What Republicans should be doing now is promoting growth and better jobs. There’s plenty of credit to go around. And then comes flat-tax reform, spending cuts, and meaningful deficit reduction.

I know this tax-cut package is not a panacea. I’m just saying it’s a good thing, a step in the right direction. And I think it is consistent with Tea Party principles, as per its endorsement by FreedomWorks.

More on this later.

Larry Kudlow — Larry Kudlow is CNBC’s senior contributor. His new book is JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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