Supply-side mentor Art Laffer has been arguing for years that lower spending as a share of GDP is essentially a tax cut to grow the economy. In fact, with a 20 percent reduction in marginal tax rates, and significant spending restraints, it’s the most powerful economic-recovery tonic possible. And let’s add to that: The Romney-Ryan plan will slash the corporate tax rate from 35 to 25 percent — a monumental growth measure.
Depending on how fast the spending comes down, I calculate that Romney could lower the spending baseline by as much $1 trillion in his first term. This, along with economic-growth incentives and upper-bracket loophole-closers, will pay for supply-side tax cuts without raising taxes on the middle class. In fact, this tax reform will drop middle-class tax rates near 12 to 20 percent — a significant reduction from current law.
This comprehensive view of growth incentives and deep spending cuts completely counters the false liberal argument that somehow middle-class taxes have to go up. With a comprehensive growth plan, middle-class taxes go down.
Ryan expressed dismay at the latest CBO recession forecast concerning a possible rollback of the Bush-era tax cuts. But he said the first order of business for the Romney administration will be to fix the tax cliff and avoid another recession, which would be devastating to America’s psyche.
Finally, Ryan summarized his monetary strategy in two words: sound money. He said, “We want to pursue a sound-money strategy so that we can get back the King Dollar, as you say it, Larry.” Indeed, the Republican platform committee, hopefully with Romney’s backing, is including a gold-commission study that would put much-needed discipline into Fed policy.
So let me say this to my skeptical supply-side friends: I don’t see one whiff of evidence that Paul Ryan has abandoned the pro-growth model. Flatter-tax reform, spending restraint, deregulation, bolstering entitlements — this is all from an updated Reagan-Kemp playbook.
And it’s a playbook that’s going to win another big election.
Larry Kudlow is the host of CNBC’s “The Kudlow Report.”