By Larry Kudlow
It would be a great tragedy if a super tax hike came out of a supercommittee compromise deal. It would do great harm to the economy -- just as much harm as President Obamas various tax-hike threats.
And on the Republican side a super tax hike would irreparably split the GOP.
OK. Heres the good news. In a CNBC interview this week I asked supercommittee co-chair Jeb Hensarling about an idea from the Democrats to raise taxes by $600 billion to $800 billion.
About $300 billion of that might be upfront with $500 billion later from some tax-reform overhaul. This would be an unmitigated economic disaster.
But Hensarling was blunt: Not going to happen Larry. He said no such deal has been presented to him. And if it were he and other Republicans on the supercommittee would not support it.
Hensarling then added We put $250 billion of what is known as static revenue on the table but only if we can bring down rates. We believe we can bring the top individual rate down to 28 29 maybe at most 30 percent and bring the corporate rate down to the median of the EU 25 percent. For emphasis he said We have gone as far as we feel we can go.
The Texan was referring to the Sen. Pat Toomey plan which would lower the personal tax rate to 28 percent and head down from there while at the same time putting limits on personal deductions (such as mortgage interest) for upper-income taxpayers. In other words flatten the rates and broaden the base.
Net revenues would go up in this scheme for two reasons: First the reduction in personal tax breaks; second the economic-growth impact would be positive. This calls on the research of Harvard professor Martin Feldstein who urged Congress to trade off lower rates with fewer deductions since the (SET ITAL) incentive (END ITAL) effect of taking home more after-tax income would benefit the economy.
Trouble is Democrats dont buy into it -- at least not yet. Senate supercommittee members Patty Murray and John Kerry have opposed real tax reform. And it has been reported that House supercommittee member Xavier Becerra opposes it (although Chris van Hollen might be looking at it).
But the whole trouble with the machinations of the two sides in this deficit-cutting episode is that the closer you get to the Nov. 23 deadline the more compromises are made. Democrats are pulling hard for higher tax (SET ITAL) rates (END ITAL) which would damage the economy while Republicans are making no progress getting any meaningful health care entitlement reform.
And the GOP is in danger of losing the narrative. Most of the noise is coming from Democratic proposals for higher taxes while Republicans have not taken any entitlement-spending-cut scalps.
In all likelihood Hensarling will succeed in his conference with the idea of making the Georget W. Bush tax rates permanent in return for about $300 billion of loophole-closers. The deeper-tax-rate-cut Toomey reform doesnt seem to be gaining traction.
Trouble is so-called tax reform would probably be handed over to the tax-writing committees in the Senate and House for a decision next year. At deal-time this year -- if there is a deal -- we wont know what the tax-rate picture will actually look like. At least thats a risk. But its possible in a worst-case scenario that personal-deduction limits (SET ITAL) will be (END ITAL) hammered out upfront without any assurances of lower tax rates next year.
All this leads me back to this question: Where are the super spending cuts? Nowhere. So why not fall back on the across-the-board budget-cutting trigger known as sequestration? Thats the $1.2 trillion backup plan if a $1.5 trillion deal cannot be reached. (Hensarling called the $1.2 trillion backstop very important.)
Then at least some spending will be cut. And the trigger is probably better than a deal that uses Iraq and Afghanistan spending cuts that would happen anyway or fiddles around with the current-services baseline from which reductions are measured.
For defense hawks who object -- since 50 percent of the trigger would come out of national security -- any spending measures would have a shelf life of only one year: 2013. After that new presidents and Congresses will do what they will.
In another interview Rep. Ron Paul (now in a dead heat for first place in Iowa polling) told me the GOP should forget tax hikes and trigger $1.2 trillion in spending cuts. Out on the campaign trail Newt Gingrich agrees.
But for investors and people in business a super tax hike would be the worst possible outcome. So take the spending-cut sequestration now and then fight the real battle in November 2012. Thats better than a supercommittee deal at any cost.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists visit the Creators Syndicate web page at www.creators.com.
Lawrence Kudlow is host of CNBCs The Kudlow Report" which airs nightly from 7 p.m. to 8 p.m.
By Larry Kudlow
It would be a great tragedy if a super tax hike came out of a supercommittee compromise deal. It would do great harm to the economy -- just as much harm as President Obamas various tax-hike threats.
And on the Republican side a super tax hike would irreparably split the GOP.
OK. Heres the good news. In a CNBC interview this week I asked supercommittee co-chair Jeb Hensarling about an idea from the Democrats to raise taxes by $600 billion to $800 billion.
About $300 billion of that might be upfront with $500 billion later from some tax-reform overhaul. This would be an unmitigated economic disaster.
But Hensarling was blunt: Not going to happen Larry. He said no such deal has been presented to him. And if it were he and other Republicans on the supercommittee would not support it.
Hensarling then added We put $250 billion of what is known as static revenue on the table but only if we can bring down rates. We believe we can bring the top individual rate down to 28 29 maybe at most 30 percent and bring the corporate rate down to the median of the EU 25 percent. For emphasis he said We have gone as far as we feel we can go.
The Texan was referring to the Sen. Pat Toomey plan which would lower the personal tax rate to 28 percent and head down from there while at the same time putting limits on personal deductions (such as mortgage interest) for upper-income taxpayers. In other words flatten the rates and broaden the base.
Net revenues would go up in this scheme for two reasons: First the reduction in personal tax breaks; second the economic-growth impact would be positive. This calls on the research of Harvard professor Martin Feldstein who urged Congress to trade off lower rates with fewer deductions since the (SET ITAL) incentive (END ITAL) effect of taking home more after-tax income would benefit the economy.
Trouble is Democrats dont buy into it -- at least not yet. Senate supercommittee members Patty Murray and John Kerry have opposed real tax reform. And it has been reported that House supercommittee member Xavier Becerra opposes it (although Chris van Hollen might be looking at it).
But the whole trouble with the machinations of the two sides in this deficit-cutting episode is that the closer you get to the Nov. 23 deadline the more compromises are made. Democrats are pulling hard for higher tax (SET ITAL) rates (END ITAL) which would damage the economy while Republicans are making no progress getting any meaningful health care entitlement reform.
And the GOP is in danger of losing the narrative. Most of the noise is coming from Democratic proposals for higher taxes while Republicans have not taken any entitlement-spending-cut scalps.
In all likelihood Hensarling will succeed in his conference with the idea of making the Georget W. Bush tax rates permanent in return for about $300 billion of loophole-closers. The deeper-tax-rate-cut Toomey reform doesnt seem to be gaining traction.
Trouble is so-called tax reform would probably be handed over to the tax-writing committees in the Senate and House for a decision next year. At deal-time this year -- if there is a deal -- we wont know what the tax-rate picture will actually look like. At least thats a risk. But its possible in a worst-case scenario that personal-deduction limits (SET ITAL) will be (END ITAL) hammered out upfront without any assurances of lower tax rates next year.
All this leads me back to this question: Where are the super spending cuts? Nowhere. So why not fall back on the across-the-board budget-cutting trigger known as sequestration? Thats the $1.2 trillion backup plan if a $1.5 trillion deal cannot be reached. (Hensarling called the $1.2 trillion backstop very important.)
Then at least some spending will be cut. And the trigger is probably better than a deal that uses Iraq and Afghanistan spending cuts that would happen anyway or fiddles around with the current-services baseline from which reductions are measured.
For defense hawks who object -- since 50 percent of the trigger would come out of national security -- any spending measures would have a shelf life of only one year: 2013. After that new presidents and Congresses will do what they will.
In another interview Rep. Ron Paul (now in a dead heat for first place in Iowa polling) told me the GOP should forget tax hikes and trigger $1.2 trillion in spending cuts. Out on the campaign trail Newt Gingrich agrees.
But for investors and people in business a super tax hike would be the worst possible outcome. So take the spending-cut sequestration now and then fight the real battle in November 2012. Thats better than a supercommittee deal at any cost.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists visit the Creators Syndicate web page at www.creators.com.
Lawrence Kudlow is host of CNBCs The Kudlow Report" which airs nightly from 7 p.m. to 8 p.m.
