Of all the discussion about Paul Ryan’s big-bang budget plan, the element I like best was caught in this Wall Street Journal op-ed title: “The GOP Path to Prosperity.” In other words, it’s a growth budget. It has plenty of spending cuts, but it also has significant pro-growth tax reform.
Obsessing over the debt is not by itself a policy. Advancing the economy and setting the stage for more job creation is a policy. Mr. Ryan kept an important dose of Ronald Reagan in both the spirit and reality of his plan. Limited government, lower tax rates, and deregulation (of energy) will all promote the path to prosperity.
The other big-picture thought is that the fiscal-policy ball is moving in the right direction. Most of what is being proposed faces a rocky political future. But the direction is unmistakable: less government, lower taxes.
This really started back in December with the extension of the Bush tax cuts and the withdrawal of the trillion-dollar omnibus continuing-resolution spending bill. It continues into the new year with new CRs. Whether Speaker Boehner gets $30 billion or $40 billion in cuts, the direction is clear: lower spending.
Just before the election, John Boehner told us he would stop the bad stuff. Looks like he has. And now Mr. Ryan keeps the drumbeat going with a 2012 budget that would cut $179 billion from the president’s budget baseline. In 2013, Ryan would take down over $220 billion. Over ten years, Ryan would lop off $6 trillion. The key point is not the actual numbers, but the direction of the numbers. Spending is coming down.
Ryan included the thinking of Dave Camp (the Ways and Means chair) on tax reform, which is a 25 percent top rate for individuals and businesses with a full-scale reduction in all the tax-credit, K Street, flotsam-and-jetsam loopholes. That’s very pro-growth.
Ryan also includes deregulation of energy for drill, drill, drill — another big growth and jobs measure.
The health care entitlement picture is going to be very muddled, and the outcome is impossible to figure. So I’ll leave that aside for a moment. The only thing Ryan neglected to do was highlight the need for stable money to stop the damaging Fed rollercoaster. But with so much on his plate, I can understand that omission for now.
Ryan basically stole the budget bacon from President Obama, who should have put this kind of plan in his State of the Union. He didn’t. And now he’s got to play catch-up. The Senate Democrats are utterly hopeless. But the public mood is still where it was last fall: less government spending and borrowing. Ryan delivers on that and then some with his tax-cut growth booster.
The cause of the debt bomb is too much spending and too little growth. Ryan attacks this with new spending rules and tough policy decisions. He also provides the new flat-tax reform incentives to grow the economy.
So if we look at the debt bomb as a share of GDP, what will happen — if Ryan prevails even modestly — is the numerator of debt will steady while the denominator of growth is unleashed.
We will be fine. I can almost hear Paul Ryan saying, “I will not allow America to become Greece.” Amen.
Larry Kudlow is the host of CNBC’s “The Kudlow Report.”