Anytime Larry Kudlow speaks, people need to listen. Whenever Larry Kudlow speaks at the (Jack) Kemp Forum, people need to study it. Larry’s message on growth is so important.
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It’s hard to believe it’s been five years.
I remember hearing late in the evening on May 2, 2009 that Jack Kemp had passed away. I was out of town that weekend.
On Monday, May 4, I awoke to hear Bill Bennett Mornings playing loud and clear on my radio. I listened to guest after guest join Mr. Bennett to pay tribute to Jack Kemp as the week began. I was still somewhat groggy when Congressman Paul Ryan was on the show to remember Jack Kemp. I can remember that interview like it was yesterday. I remember Bill Bennett pointing out that Jack Kemp would note that Adam Smith wrote The Wealth of Nations, not The Poverty of Nations. Kemp wanted the focus to be on what worked, not on what failed. Solutions oriented folks operate that way.
Jack Kemp has been in my thoughts a lot lately. As I have gotten a little older and have started to realize that in politics many of the arguments never find resolution, I have been looking closely at some of the work Kemp did to improve the lives of the less fortunate.
Jack Kemp was compassionate, a bleeding heart conservative, and this may have been his greatest gift. Kemp was able to apply a humanitarian view to many of the problems that ailed society simply by showing up. Kemp spent countless hours in places modern Republicans rarely tread. Kemp believed in the American Dream, the belief that in America, every single person had the capacity to reach for the stars, and get there, if they simply wanted it and worked toward it. Kemp wanted a level playing field, rather than viewing America as red or blue and taking a “every man for himself” approach, Kemp wanted to make sure that being trapped was an option, not a predetermination.
I’ve written recently about Congressman Paul Ryan and Robert Woodson, founder of the Center for Neighborhood Enterprise. I won’t rehash that work here, you can read it on your own if you like, but it’s worth noting that Bob Woodson worked closely with Kemp, and in turn some twenty years later is working with Congressman Ryan as they both look to address some of the same issues on which Kemp had begun to work. Kemp is no longer with us, but that certainly does not mean his work does not continue.
Finally, Jack Kemp wanted economic growth. Serious, unlimited, no-holds-barred, through-the-roof, economic growth. He figured cutting taxes would spur entrepreneurs and development. Sure, he wasn’t as worried about the deficit side of things, the logic of the day was, if you cut taxes and more people went to work, there would be more people paying in to the government till, and deficits would go down just by their nature. And we have to remember, Jack Kemp helped introduce tax cuts to the Republican platform, tax cuts were not always part of the Republican mantra. If you read a little history from the late 1970’s, you’ll see that Ronald Reagan and Jack Kemp had some pretty fierce arguments about tax cuts. Kemp ultimately won the debate, Reagan adopted Kemponomics as Reaganomics, and the 1980’s saw a great economic recovery. The rest is history.
Anyway, on the five year anniversary of Jack Kemp’s passing, I wanted to add my two cents. It may be closer to fifteen cents, and you loyalists will get that and laugh. It’s a hodgepodge of thoughts, but that’s rather the point.
It’s hard to believe it’s been five years…
By Arthur Laffer
September 12, 2011
Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.
Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won’t speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don’t work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.
I’m beginning to think that Irving Kristol was correct when he wrote, “It takes a Ph.D. in economics not to be able to understand the obvious.” It shouldn’t surprise anyone why the economy isn’t getting better.
If the U.S. wants prosperity, government doesn’t need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.
African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn’t even take into account “discouraged” workers, “involuntary” part-time workers and “underemployed” workers. But even these numbers don’t tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.
Behind these numbers are millions of lives discouraged and despondent. People who’ve lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he’s living on handouts from Uncle Sam. We as a nation can’t wait until 2013 to address this issue.
Whether President Obama’s base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.
Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:
A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer’s portion of the payroll tax. The locus of employment does have to be in the enterprise zone.
Don’t for a moment think that this will be a budget buster. Right now there aren’t many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won’t need welfare. The best form of welfare is still a good job.
B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren’t worth hiring. That is why they are unemployed.
A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami. Associated Press
Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.
C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don’t unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.
When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I’ll bet they’re even worse now.
D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.
Businesses don’t move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It’s as simple as that.
I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.
Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).
This editorial appeared in the Wall Street Journal.
By Jack Kemp
March 11, 2008 for Townhall.com
In the early 1970s, as I began serving in the U.S. Congress representing Buffalo, N.Y., I remember the disdain (and disgust) I felt as the Republican Party was torn apart by President Nixon’s Watergate follies, and I felt even worse by his wage and price controls, tax and tariff hikes, and the devaluation of our currency.
As the country divided over the Vietnam War, stagflation began to appear, first under Nixon, surging under President Ford and reaching its most dangerous heights under President Carter. It didn’t end until the early 1980s, when President Reagan began cutting tax rates on both labor and capital investment and as Paul Volker, chairman of the Federal Reserve Board, sharply tightened monetary policy. This was the right combination of fiscal, tax and monetary policies that ended the simultaneity of inflation and recession, what we now know as “stagflation.”
In those dark days of the 1970s, economic malaise, Watergate crimes and fierce debates over the Vietnam War, John Gardner of Common Cause wrote something in Newsweek I’ve never forgotten: “America is caught in a crossfire between the ‘uncritical lovers’ and the ‘unloving critics.'”
His description of crossfire between chauvinists who saw nothing wrong in America and the nihilists who wanted America to implode and be built into a new “socialist” model was the perfect metaphor for that decade. Actually, that’s a pretty apt description about some of the debates taking place today over the Iraq War and at a time we are beginning to see the incipient stages of a new round of stagflation.
John McCain versus Barack Obama or Hillary Clinton will square off in the presidential campaign, with McCain “the older and wiser” versus Obama, the “charismatic and younger,” or Clinton, “the experienced one.” (Not!)
It’s no secret I’m a strong John McCain guy, but not without respect for both Obama and Clinton. As Sen. McCain has pointed out, it will be a civil and respectful debate, but very, very spirited, as indeed it should be, with Obama and Clinton both on the far left.
With the dollar’s weakness pervasive and the economy slowing down to a near halt, with more and more evidence of too many Americans, particularly people of color, losing their homes and their nest eggs of wealth, I believe McCain will chart a political and economic course for our nation that will do far more than just offer “hope” or “change.” I believe he will pursue policies that will actually lead to strong economic growth while ending these early stages of dollar weakness and inflation.
Those on the left will ask in response, “Don’t you have to have higher interest rates to strengthen the dollar?” Absolutely not!
As David Malpass, chief global economist at Bear Stearns, points out, “The two aren’t tightly connected. Many countries with low interest rates have had strong currencies, including the German mark in the 1960s and the euro now. The dollar strengthened in the first years of the Reagan administration when he focused on it and put in good economic policies. We should do that again. The United States is a great country, and the dollar is normally a great currency.”
McCain, I firmly believe, will do that again.
As I wrote recently, moving our nation toward a flatter, fairer and simplified tax code that is both pro-growth and pro-family while strengthening the investment climate in our country will immediately strengthen the demand for the dollar here and around the globe. McCain knows we need a tax policy for the 21st century that both recognizes the need for a competitive economy in an increasingly flattening world while encouraging capital formation and job creation here at home. His ideas for cutting corporate tax rates from 35 percent to 25 percent, expensing all investment in machinery, equipment and technology, making permanent the 15 percent tax rate on capital gains, dividends and estates while eliminating the alternative minimum tax would give us the answer to the dangerous simultaneity of inflation and recession.
These pro-growth initiatives by candidate McCain will force Sens. Obama and Clinton and their political advisers to say, “Oh no, we can’t cut tax rates, we need higher taxes – but only on the rich.” But soaking-the-rich rhetoric and policies to redistribute wealth will weaken the U.S. investment climate, further weaken the dollar and, in the end, exacerbate stagflation.
McCain’s thesis of noninflationary growth will have the winning edge against Obama and Clinton’s “antithesis.” I truly believe this, among the other issues, like free trade, immigration reform, national security and a strong foreign policy, accompanied by McCain’s pledge of strong appointments to the Supreme Court like Roberts and Alito, will give Republicans the opportunity to both win the White House and gain seats in the U.S. Congress.
By Jack Kemp
September 27, 2004 for Townhall.com
It has been a long time since the federal government made a serious effort at urban renewal and development. The efforts that have been made, moreover, have been piecemeal and consequently have produced mixed results.
That’s why I have joined with fellow former Housing and Urban Development Secretary Henry Cisneros, Kent Colton, former president of the National Association of Home Builders, and Nicolas Retsinas, the director of Harvard’s Joint Center for Housing Studies, to produce a book, “Opportunity and Progress: A Bipartisan Platform for National Housing Policy.”
This project came together because we all agreed on the gravity of the nation’s housing problem. Sure, homeownership is at an all-time high, and that is great news, but for those yet to own a home, particularly those on the bottom of the income ladder, there is much work yet to be done.
In our book, we put forth a set of recommendations that reflects our shared vision for a national housing policy. We wanted this policy to be not just bipartisan, but pragmatic, plausible and actionable – with the underlying rationale being that our nation’s housing programs and policies should and must support individual access to opportunity. We understand that homeownership is the linchpin of the American Dream.
Home ownership allows Americans of even modest means to put down roots in the middle class. But, home ownership is more than that – it provides the keys to financial independence and wealth accumulation.
In our report, we outline in detail a 12-point agenda that includes programs to end chronic homelessness, revive public housing, increase the use of housing vouchers and eliminate bureaucratic hurdles to affordable housing, just to name a few. More specifically, we endorse the creation of a National Housing Trust Fund. We feel that the trust fund would help ameliorate the increasing burden of demand for low-cost rental housing outpacing supply in many markets across the country. The trust fund would be used to support the production, preservation and rehabilitation of 1.5 million affordable housing units over the next 10 years. At least 45 percent of the trust fund monies would be earmarked for housing affordable to extremely low-income households.
Another key proposal is a federal homeownership tax credit. This concept has the support of President Bush and should receive broad bipartisan support in Congress. And, one more key proposal is the elimination of regulatory barriers to the production of work force housing. The reason for this proposal is that many communities presently use zoning and other regulations to preclude the production of work force housing. To remedy this problem we propose linking funding incentives within federal transportation programs and the HOME and Community Development Block Grant programs to the production of work force housing. We also seek to promote the formation of public, private and nonprofit coalitions to facilitate barrier removal and facilitate the assembly of urban land for housing and economic development purposes.
Taken together, we hope our recommendations will help shape a broader dialogue on urban renewal. President Bush has articulated the broader issue as creating an ownership society within which there will be specific opportunity zones, which would include many of our nations’ economically distressed urban centers as well as rural areas and the territories. A substantial piece of that effort is the creation of a special collaboration with the National Urban League to create an entrepreneur network, which will include one-stop centers for business training, counseling, financing and contracting. A number of federal agencies including the U.S. Small Business Administration, the Department of Commerce’s Minority Business Development Agency and other agencies will help provide resources and outreach for minority enterprise.
Finally, on a more macro-level, Sen. Sam Brownback, R-Kan., and Rep. Paul Ryan, R.-Wisc., have introduced legislation to jump-start the infusion of capital into these areas with their National Enterprise Zones legislation. Their legislation would “greenline” designated areas for pro-growth tax treatment on income, savings and investment within the zone as a means of fueling economic growth so that opportunity zones and our more specific recommendations will produce maximum positive results.
With presidential leadership, I have no doubt that these seemingly disparate ideas, working together, will help pave the way toward homeownership, opportunity and economic growth to our nation’s cities and other economically distressed areas of the country.
By Jack Kemp
January 5, 2004 for Townhall.com
Just in time for the presidential campaign, former Clinton Treasury Secretary Robert Rubin has published a new book, “In an Uncertain World,” in which he contends that the Clinton tax increase on middle-income Americans was “tiny.” Rubin writes that he encouraged the tax hike because he thought it would “give us credibility in the markets.” Here we have the essence of “Rubinonomics,” a kind of New-Age social science premised more on feel-good psychology and business/consumer confidence than economic fundamentals.
On the presidential campaign trail, Democrats, and particularly front-runner Howard Dean, are embracing Rubinonomics, blaming the Bush tax cuts for the escalating deficit projections and proposing tax hikes. Dean, for example, has put forward a tax plan that would reinstate the marriage penalty, resurrect the death tax and increase taxes on a typical middle-class family of four by almost $2,500 a year, according to Steve Moore of the Club for Growth. Moreover, the governor has the audacity to call himself pro-business while pushing for raising the tax rates on capital gains and dividends, increasing the cost of capital, which is decidedly anti-business.
The fact is, with the economy growing at rates not seen in 20 years, governments at all levels will soon see a substantial rise in tax revenues. The real cause of short-term deficits is a witch’s brew of recession and out-of-control federal spending. The real cause of the long-term fiscal imbalance is not insufficient revenues but ill-conceived tax-and-transfer entitlement programs that will collapse of their own weight unless they are reformed to allow workers to invest while they are young to build up annuities to pay for their retirement needs.
“Rubinomics,” ironically, has its roots in the old conservative canard that government borrowing crowds out private investment. The so-called “crowding-out” hypothesis holds that when the government borrows money to finance spending it competes with private companies that are also seeking to borrow money, thus increasing demand for credit and causing interest rates to rise. Higher interest rates increase the cost of doing business and therefore reduce economic growth. If the government raises taxes to reduce deficits or run surpluses, then, the conjecture holds, interest rates will decline, the cost of business will fall and economic growth will rise.
The problem with Rubinomics is that the empirical evidence contradicts its predictions. Both sound economic theory and the historical record demonstrate that it is government consumption of private resources – i.e., government spending whether tax-financed or debt-financed – that crowds out private investment and retards economic growth.
Using the 1990s as a case study, we find that just the opposite happened from what Rubinomics predicts: Interest rates actually began to rise as the deficit declined, and as the economy began to grow in the late 1990s and deficits turned to surpluses, interest rates continued upward. Then, after the economy stagnated in the latter half of 2000 continuing through mid-2003 and surpluses turned to deficits, interest rates sank to historically low levels.
A recent Congressional Budget Office report illustrates the real dynamics behind deficits. Under current tax law, revenues will continue to grow and provide adequate revenues to finance a government growing at the same pace as the economy. It’s when politicians use good economic times to enlarge government at the private sector’s expense that revenues appear to “lag.” This is precisely what the Democratic candidates intend to do by repealing the Bush tax cuts.
If the administration’s tax rate reductions are allowed to expire, by 2050 the combined effect of economic growth and a progressive tax system will increase revenues to approximately 25 percent of GDP, the highest level of taxation in American history – including World War II – and fully one-third higher than the historical average. On the other hand, if the president’s tax cuts are made permanent, federal tax receipts would level off around their historic average of 18.4 percent of GDP. Clearly, the “structural deficits” complained about in the press and among left-wing economists stem from too much spending, not insufficient tax revenue.
Recent press reports on the president’s budget proposals for fiscal year 2005 suggest he is on the right track by reining in discretionary spending. I hope President Bush will campaign on the proposition that government spending should not grow faster than the economy and that he will pledge to veto any legislation inconsistent with this goal.
But to successfully ward off tax-and-spend liberals, as well as tax-happy Republican deficit hawks, Bush must provide bold leadership on entitlement reform. As my supply-side guru Irving Kristol always used to say, the best way to reduce the growth of government is by enacting policies that allow the economy to grow faster and enabling people to build wealth.
To that end, I hope the president will announce in his State of the Union address a reform agenda including Social Security reform premised upon large personal retirement accounts available to all taxpayers with a guaranteed minimum benefit equal to that promised under the current system. That way, he can exorcise the New-Age mythology of Rubinomics and get us back to fundamentals.
By Jack Kemp
July 30, 2002 for Townhall.com
Dear Mr. President:
I want to commend you for reaching out for advice recently to a number of outside sources on what to do about the stock market, the economy and the challenges facing our global trading system. It’s reassuring to know you are vigorously pursuing trade promotion authority and might be considering ending the double taxation of dividends. However, with all due respect, I was disappointed to hear that the Treasury Department is pre-emptively ruling out as unrealistic any consideration of major tax reform, tax simplification and deregulation as a way of restoring strong economic growth. Twenty-five years ago this month, Sen. Bill Roth and I first introduced our legislation to slash income tax rates 30 percent across the board, modeled after President John F. Kennedy’s tax rate cuts of 1964. I was derided as a witch doctor, a snake oil salesman, a voodoo economist and a dangerous riverboat gambler — and that was just coming from Republicans. You should have heard what liberal Democrats said.
We were told by so-called “mainstream” economists that if tax rates were cut by 30 percent, revenues would collapse, inflation would soar, interest rates would go through the roof, the economy would crash, and poor people and senior citizens would starve. On Aug. 15, 1981, President Ronald Reagan signed the across-the-board tax rate reductions into law. By 1988 the top rate was 28 percent and the economy boomed without inflation, while revenues went up, not down, as we had predicted.
Congress emasculated your tax rate reductions by phasing them in over almost 10 years and then repealing them in the 11th. In this environment, the small tax rate reductions will do little to help the economy grow but will provide your opponents a target and an excuse to blame you for the weak economy, slumping stock market, and eviscerated 401(k) and pension plans owned by American workers.
I urge you to ignore the so-called “political realists” in and out of your administration who tell you that anything bold can’t be done. Tell the naysayers on your economic team to gird themselves for battle or pack their bags for home.
The issue is not economic security; it’s the need for strong economic growth and low rates of unemployment. Here’s some advice to get the economy moving again: Advance bold and serious economic growth proposals that make tax reform, tax simplification, tax rate reductions and deregulation the centerpiece; roll over capital gains taxes on equities to match the rolling over of capital gains on residential housing; rather than talking about trade promotion authority, repeal the steel tariffs; articulate that America doesn’t seek a weak or strong dollar but a stable one; and speak to the world on how the OPEC cartel’s pricing of oil is a disaster to your market-oriented goals for a strong world trading system.
In the meantime, it has become apparent that Congress is a spending and regulation runaway train. It is passing vaguely and ill-conceived regulations on businesses that will certainly cause more long-term damage to the economy. Some in the Senate are even going to the point of hoping to empower the nongovernmental Federal Accounting Standards Board to require businesses to expense the estimated future value of stock options, which will destroy one of the most single powerful forces at work today democratizing our entrepreneurial capitalistic system.
There is no small irony here. Executives at Enron and other American corporations are under criminal investigation for reporting estimated future earnings as real earnings in the current period, which misleadingly, perhaps fraudulently, overstates earnings. Some in the Senate, meanwhile, in stealthlike fashion, are proposing to force companies to report the estimated future value of stock options as a real expense, which vastly understates earnings. If we really want to jump-start growth, particularly in technology, we should expense investment in technology, not stock options.
Bottom line, Mr. President, Washington is obsessed with a false trade-off between economic growth and economic security, and the policies being put in place in the name of that trade-off are guaranteed to give us less security as well as less growth. Your economic team is doing you a disservice if they are unwilling to advise you on the bold and serious proposals necessary to move this economy forward.