James Pethokoukis

Politics and policy from inside Washington

Supply-side Obama?

December 9, 2009

Larry Kudlow has a strange but oh-so wonderful thought:

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.

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?

Comments

Thank God for Larry Kudlow… the last optimist in the market. He’s just about the only one left with brains and patience.

Posted by nonono | Report as abusive
 

I agree. Larry Kudlow is the best! I’d like to see more of him and his common sense.

Posted by gotthardbahn | Report as abusive
 

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