Kudlow’s Money Politics

Is Obama Going Supply-Side?

In NRO’s coverage of Obama’s jobs speech at the Brookings Institution yesterday, I have yet to see any mention of supply-side tax cuts. The president’s jobs proposal includes a zero capital-gains tax-rate for small-business investors, and full cash-expensing for small-business investment in plant and equipment. These are potentially powerful incentives for the job-creating small-biz sector. They may only last for a year or so, depending on the mark-up. But they are good things in and of themselves, and they suggest that Obama is aware of incentive effects on economic growth.

I have perused all the NRO posts on the subject so far, and can find no mention of these supply-side tax cuts.

Sure, the new spending is all wrong. That won’t create jobs, and will only bloat the deficit. But Obama’s language was on the supply-side, even in addition to the tax-cut proposals. He said growth will bring in revenues to cut deficits.

And there’s more. CNBC is reporting that the administration will dedicate $175 billion of TARP money to deficit reduction. This will leave about $140 billion of unused TARP money for spending — or for incentive tax cuts.

Now just think what would happen if a zero capital-gains tax rate were applied economy-wide for all investors. Or if Obama’s new supply-side thinking leads him to leave the cap-gains tax rate right where it is at 15 percent.

Are the markets sniffing out a more centrist, pro-growth Obama? The dollar is rising, and gold is falling, so that might be the case. Growth solves inflation, and it can restore King Dollar to its throne. Growth can absorb Ben Bernanke’s free-money balance-sheet cash creation.

Is it possible that we are looking at a supply-side solution to the economy and the deficit? Strange, but wonderful, thoughts.

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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