‘Stop All the Bad Stuff’
At a small, informal breakfast in Midtown New York Tuesday morning, House Republican leader John Boehner said the lame-duck Congress, scheduled roughly for November 15 through December 22, will pass a bill that extends all the Bush tax cuts. And he said President Obama will not veto that bill.
Boehner reminded the breakfast group that George Stephanopoulos asked Obama many times in a recent Good Morning America interview whether he would veto an extension of the full Bush tax-cut program. And not once did Obama answer the question.
That’s a shrewd point by Mr. Boehner. It harkens back to Obama’s last full White House press conference, when the president also dodged a question about vetoing a full extension of the tax cuts.
In practical terms, Boehner expects this lame-duck tax-cut bill will be part of an omnibus appropriations bill to fund the government. (There is no FY2011 budget.) He felt an omnibus bill would be better than a continuing resolution. In effect, it would be a mini reconciliation package — and a pro-growth package at that.
Boehner also made it clear that he was unhappy with the 99 Republicans who just voted — along with most Democrats — to pass the China trade-and-currency-protection bill. He basically said, “No, we must not go in that direction.” And he believes the bill will come to nothing, in particular under Republican leadership.
Boehner understands that such a bill would take a toll on middle- and lower-income people. Indeed, a massive price increase on Chinese imports brought on by protectionist tariffs, or a whopping hike in the value of the Chinese yuan, would slam all the folks who shop at Wal-Mart and Dollar General.
John Boehner himself has a strong free-trade record, and he grasps the need for a stable dollar. When asked about the plunging dollar during the 2000s, and how higher interest rates and inflation subverted the Bush tax cuts, he nodded in agreement. Boehner seems to get it.
More generally, the Republican leader is focused on stopping any regulatory, tax, and trade barriers to job creation. When asked about the main agenda point for a GOP Congress, Boehner said, “Stop all the bad stuff.”
I like it. Stop all the bad stuff.
So after the breakfast I got to thinking about the economy and a couple of front-page stories in the New York Times and the Wall Street Journal about the huge corporate-profits comeback and the incredibly strong financial position of American business. True enough, while firms have been stockpiling cash and making money hand over fist, and while they have yet to hire new workers or invest in new projects in earnest, the financial-health numbers are very impressive.
After-tax profits through the second quarter are up $1.2 trillion, marking the third-highest profits share of the economy since 1947. The cash hoard runs around $2 trillion, about half of which is overseas. It’s actually cheaper for firms to borrow and refinance their debt at rock-bottom interest rates than to pay the 35 percent tax rate on repatriating foreign earnings. Here’s an idea: How about a 5 percent tax holiday to bring those foreign earnings back home?
So U.S. companies have borrowed nearly $500 billion in the corporate bond markets this year. The railroad Norfolk Southern Corp. actually borrowed a quarter of a billion dollars in 100-year bonds. And Microsoft tapped the borrowing market for $4.75 billion at an interest rate of less than 1 percent.
Now, the New York Times put a sinister spin on this, as one might expect. The Gray Lady complained that while firms are getting cheap money, they’re not yet creating jobs. Fine. That’s true. But we are seeing the first faint signs of capital investment spending. Non-defense capital-goods orders are growing at 20 percent year-on-year and shipments are rising at 13 percent. And private job creation is coming in about 70,000 per month.
Of course, with the huge uncertainty over federal tax-and-regulatory policy and the economy itself, American business is being very cautious. But if John Boehner and the Republican cavalry can ride to Washington to keep tax rates down and “stop all the bad stuff,” then business and the economy may be poised for a massive spring-back.
The most recent Gallup poll of likely voters shows Republicans leading Democrats 53 to 40 percent in a high-turnout scenario, and 56 to 38 percent in a low-turnout scenario. So it would seem the Republican cavalry is coming. If policy and politics move in the right direction following the November elections, the cloud of uncertainty could begin to evaporate and the U.S. economy could explode on the upside.
Think of it.
Larry Kudlow is the host of CNBC’s The Kudlow Report.