Shared op­ti­mism about the econ­omy

The Washington Times Weekly - - Commentary - LAWRENCE KUD­LOW

In the last month’s run-up to the midterm elec­tions, stocks climbed while Repub­li­can polls fell. Does this mean the mar­kets fa­vor grid­lock in Wash­ing­ton, af­ter six years of Repub­li­can rule? It’s an odd par­a­digm.

I put this ques­tion to Vice Pres­i­dent Dick Cheney in Wash­ing­ton two weeks ago, dur­ing a spe­cial in­ter­view that aired on CNBC’s “Kud­low & Co.” His an­swer was no. He dis­agrees with the mar­ket. The veep strongly be­lieves a Demo­cratic takeover of Congress will spell trou­ble for both the cur­rent low-tax en­vi­ron­ment and the econ­omy over­all.

A ris­ing stock mar­ket and sag­ging GOP for­tunes? Mr. Cheney would pre­fer to think the cur­rent bull mar­ket re­flects a strong econ­omy, one that grew out of the Repub­li­can tax cuts of 2003. And it’s here that he spies a dan­ger:

“I think if Char­lie Ran­gel ends up as chair­man of the Ways and Means Com­mit­tee [. . .] that he doesn’t be­lieve there’s a sin­gle one of the Bush tax cuts that ought to be ex­tended.”

A heated Char­lie Ran­gel, in re­sponse, ac­tu­ally called the vice pres­i­dent an ob­scen­ity. So the bat­tle is joined.

Truth be told, Mr. Ran­gel has said more re­cently that he has no in­ten­tion of rolling back the in­vestor tax cuts on cap­i­tal gains and div­i­dends. But Mr. Cheney says: Not so fast.

“If a man like Char­lie Ran­gel were to be chair­man of (Ways and Means) [. . .] sit­ting there with the gavel, all he has to do is not act — just don’t call up the leg­is­la­tion — and there’ll be a big tax in­crease.”

So, Mr. Vice Pres­i­dent, will you take a no-new-tax-hike pledge, in­clud­ing any high-tax, pay-as-yougo deals?

“Well, I will,” said Mr. Cheney, “but the pres­i­dent is the one that ob­vi­ously has got the pen, and he cer­tainly sup­ports that same propo­si­tion.”

The vice pres­i­dent de­scribed the 15 per­cent tax rate on div­i­dends and cap­i­tal gains, the top 35 per­cent per­sonal tax rate, the re­duced mar­riage penalty and the en­hanced child credit as safe with Mr. Bush in of­fice. He be­lieves higher taxes are not a worry.

And what about spend­ing? House Mi­nor­ity Leader Nancy Pelosi told me two weeks ago on CNBC that the Democrats will push for a bal­anced bud­get and spend­ing re­straint. She also said tax in­creases would only be a last re­sort. I re­layed this pledge to Mr. Cheney, who found the hu­mor in it: “I don’t think she’s run­ning on that plat­form in San Fran­cisco.”

But aren’t the Democrats steal­ing the Repub­li­cans’ ba­con on the whole bal­anced-bud­get is­sue? And why haven’t Repub­li­can lead­ers called for a bal­anced-bud­get tar­get? So far as I know, no one in Congress or the White House has.

Mr. Cheney noted that the ad­min­is­tra­tion has had to meet some “ex­tra­or­di­nary” spend­ing re­quire­ments. Yes, they have — among them the high price of war and se­cu­rity in the long wake of Septem­ber 11, 2001. But here, sup­ply-side pol­icy once again mat­ters: The deficit has dropped to a low per­cent­age of GDP, his­tor­i­cally speak­ing, thanks to the eco­nomic growth and rev­enues thrown off from the Bush tax cuts. Said Mr. Cheney, sound­ing very bal­anced­bud­get minded, “We have done a lot to ex­er­cise re­straint in terms of spend­ing.”

So can we ex­pect two years of Congress and the Ex­ec­u­tive Branch try­ing to outdo each other on spend­ing con­trol? Mar­kets won’t mind at all.

And what of the out­look for even higher reg­u­la­tions on busi­ness? Sto­ries of CEOs back­dat­ing stock op­tions fill the fi­nan­cial pages th­ese days. But will this fuel new re­stric­tions on hedge funds and private eq­uity funds?

“I’m re­luc­tant to see ad­di­tional reg­u­la­tion,” the vice pres­i­dent said. “In gen­eral [. . .] I think you can make a case that Sar­banes-Ox­ley went too far.”

Mrs. Pelosi her­self said the Democrats want to re­lieve some of the over-reg­u­la­tory pres­sure of Sar­banes-Ox­ley. More stolen ba­con?

Mr. Cheney shrugs, “We’ll be happy to work with them on it.”

The vice pres­i­dent ended our talk by not­ing how op­ti­mistic he is with the elec­tions only days away: He thinks the Repub­li­cans will hold the House and Se­nate. I’m op­ti­mistic, too, but for a dif­fer­ent set of rea­sons.

Adding all this up, key Democrats say they won’t raise taxes — and if they do try, the pres­i­dent will be there with his veto pen. Think Grover Cleve­land, who holds the Amer­i­can record for pres­i­den­tial ve­toes. The Democrats also are at least talk­ing spend­ing re­straint, as are Mr. Cheney and his boss. And not only is the veep say­ing no to new reg­u­la­tions, there could be bi­par­ti­san agree­ment that Sar­banesOx­ley has gone too far.

This could be the real mes­sage of the Goldilocks mar­ket: a Rea­ganesque pol­icy mix of low tax rates, lim­ited spend­ing and less reg­u­la­tion. It would con­tinue the great­est story never told.

Or am I be­ing too op­ti­mistic?

Lawrence Kud­low is host of CNBC’s “Kud­low & Com­pany” and is a na­tion­ally syn­di­cated colum­nist.

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