James Pethokoukis

Politics and policy from inside Washington

A different kind of “second stimulus”

October 6, 2009

Larry Kudlow speaks or, rather, writes:

As for the second stimulus package, here’s my plan: Go for growth. Reduce tax rates to provide growth incentives, something Team Obama has avoided like the plague. Cut the top corporate tax rate from 35 to 25 percent, and accompany that with a small-business tax cut from 35 to 25 percent. And leave the Bush tax cuts alone. Don’t let them expire in 2011. That’s cap-gains, dividends, and the top personal rate.

Yes, this is a supply-side solution. Reducing tax rates will spur growth incentives. Forget about Keynesian spending multipliers, which Harvard’s Robert Barrow writes are less than one. Instead, borrow from George W. Bush, Bill Clinton, Ronald Reagan, and John F. Kennedy. (And Calvin Coolidge and Andrew Mellon, too.) Forget about Keynesian spending. Forget about class warfare. Forget about income redistribution. Go for growth.

Me:  Of course, what Team Obama is actually considering is more social spending and then a VAT to close the budget gap. Nor, apparently, does it seem to much care about the dollar, despite the ghostly presence of Paul Volcker. Weak dollar, high taxes, big budget deficits — an interesting mix.

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