Last week I had the privilege of speaking with Larry Kudlow, director of the president’s National Economic Council, about Tax Cuts 2.0 and the economy.
The goal is helping everyday Americans of all walks of life to understand the administration’s proposals and thoughts on taxes, and on furthering this robust economic renaissance reminiscent of the Reagan years. Enjoy!
J.T. : Where are you guys at on the second round of tax cuts? What’s the thinking behind it?
L.K.: Several months ago, there had been some loose talk about capital gains and indexation and payroll taxes and things, and I went down and had a chat with the president and said, how about we create a study process, and we’ll call it “Tax Cuts 2.0.” And he liked it a lot.
You know, we’re very proud of what we call the Blue-Collar Boom. The middle and lower wage earners’ wages are growing faster than their managers’.
They’ve had a 47% increase in their household net worth from stocks and their homes. Whereas the top 1% has increased their net worth by only 13%.
When we designed the business tax cuts in late 2015 and early 2016, we were using a theory that the biggest beneficiaries of business tax cuts were not the wealthiest; in fact, they would be the workers. And that’s exactly what’s happening, and it’s an absolute key part of our story.
J.T.: In essence, a small business or mid-size business, any business that has more capital to invest in expansion, to hire people. There’s a direct effect.
L.K.: Yes, exactly, because there is more business investment, we are seeing an increase. Eight-quarter productivity growth has been around 1½%. I’d like to see that at 2½% in the next few years, but it had been really not growing, stuck around zero percent for most of the 2000s. The higher productivity factor leads into real wage gains. The incentives for small businesses to invest produced the biggest gains that are, in fact, in the bottom half.
So you’ve got a 3½% unemployment rate. The lowest in roughly 50 years.
J.T.: What’s the expression, “When you’re young … ?”
L.K.: Churchill. Churchill said, and by the way, this is true for me: “When you’re in your 20s, if you’re not a socialist, you have no heart. When you’re in your 30s, if you’re not a capitalist, you have no mind.”
J.T.: Assuming Tax Cuts 2.0 gets through, will the earned income tax credit stick?
L.K.: We like the earned income tax credit. We doubled the standard deduction. We increased the child credit. All that stuff is going to stay in. Absolutely.
Back to Tax Cuts 2.0. We have all these different savings accounts. We have health and education savings accounts. We’d love to simplify that into one savings account called the Universal Savings Account. On the Hill they call it the USA Account.
This is a thought, this is not yet in concrete. You could have this USA Account — which would go toward middle-class people. You would put your money in after tax and the inside buildup, of course, would be tax-free.
J.T.: It’s going to help working families of all political stripes. Would they be permitted to invest that in stocks?
L.K.: Absolutely. We’re talking about average, middle-income, blue-collar or service workers. They’re up 50% in the stock market, and that’s really a nice number. And there’s going to be 10% middle-class tax cuts, that’s another idea.
Everything we do here is about economic growth.
Anything the president does in the second term will be aimed at economic growth, middle-class tax relief, small business. We may be able to help small businesses on tax relief some.
The 2017 bill helped, but I think we might even do some more on the small-business front.
And then of course the president will keep up the effort to continue to lower regulatory costs for businesses. He loves to deregulate, he loves to use executive orders and he loves middle-class tax cuts.
J.T.: Unemployment is at a phenomenally low level. You have people of all ethnicities doing well. And we’re still adding jobs. Do you think if the train stays on the track, we can get it down to 2.5% as measured by U-3?
L.K.: We’ve had 3½ million people come back into the labor force in three years. It could drop to 3, it could drop to 2.7.
You’ve got more people working with better productivity. The dollar has been steady, sound, reliable. And I think that’s the key to holding down inflation.
J.T.: So it’s fair to say part of the president’s campaign theme ought to be “Just Say No to Socialism”?
L.K.: That’s a good way to put it. Or “Just Say Yes to the Blue-Collar Boom, Just Say Yes to Free Enterprise.”
You’ve got a lot of optimism here. You’ve got an optimistic president, you’ve got an optimistic NEC director. I think that the country is turning more optimistic.
I just saw in the Gallup poll economic approval of 60% — that’s a remarkable number.