Kudlow: Reclaiming Reagan’s Voice
by Larry Kudlow
June 09, 2014
Despite a shrinking economy in the first quarter and outright declines for consumer spending and manufacturing in April, the May jobs report delivered the fourth-straight monthly gain above 200,000, with nonfarm payrolls jumping 217,000. This is the best four-month increase since late 1999. And finally—after five years—total U.S. payrolls rose above the previous employment peak set in January 2008. (Just after the 10th anniversary of Ronald Reagan's death on June 5, it's worth noting that the Gipper's supply-side policies reclaimed all the lost jobs from the 1981-82 recession in a matter of months.) As for the unemployment rate, it held steady at 6.3 percent. And the underemployment rate (U-6) dropped a 0.1 percent to 12.2 percent.
So overall, this was a positive report. And it's good to see more Americans working. But there are still some serious warts in the jobs story.
One of those warts is a low 2.1-percent wage gain for the workforce. Wage growth for the last couple of years has been stuck around 2 percent. Even optimistic economist Mike Darda calls this "unimpressive take-home pay." Worker wages are barely running ahead of inflation.
Another blemish in the jobs picture is the rock-bottom employment-to-population ratio. It's sitting at only 58.9 percent, versus a prerecession peak of 63.4 percent. And the workforce participation rate remained stuck at 62.8 percent.
Looking at working-age demographics, some believe there's a jobs gap of nearly 7 million. And economist Scott Grannis notes that while private-sector jobs have been growing at roughly 2 percent for years, productivity has slumped to less than 1 percent.
Putting it all together, overall economic growth is still trapped in a subpar growth zone. And it will remain there, Grannis said, "unless and until policies in Washington become more growth-friendly(e.g. reduced tax and regulatory burdens)."
Aha! Growth-friendly policies.
As you know, this is an election year. So let's see where the two political parties stack up on the subject of growth.
The Democrats want a minimum-wage hike. That may sound great on the surface, but it's actually a big job loser for the lowest-skilled and poorest among us. President Barack Obama and his EPA have launched a war on coal, which will cost hundreds of thousands of jobs if implemented. And then there's Obamacare, which the CBO estimates will cost at least 2.5 million jobs.
Not a lot of growth-friendly policies coming from the Democrats.
But what of the Republicans? Where are their growth policies? Alas, with some notable individual exceptions, I fail to see a united GOP growth message.
The YG Network, chaired by Republican House Majority Leader Eric Cantor, has put out a white paper called "Room to Grow." Nice title. But the chapter on tax reform actually attacks supply-side economics, and it never even mentions corporate tax reform.
Readers know that corporate tax reform is my single-favorite pro-growth policy. Actually, I'd like to abolish the corporate income tax altogether—including all the cronyist, big-government special favors, carve-outs, deductions, and exemptions. Out with all the K Street mischief.
You know who the biggest winners would be? Wage earners. That's right. Corporations don't pay taxes. They merely collect, and then pass on the tax cost in the form of lower wages and higher consumer prices.
Want to maximize wages? Forget the minimum wage and embrace corporate tax reform.
Know which European country has the fastest growth rate right now, at 3 percent? Britain. And the Brits have a 20-percent corporate tax rate. Compare that to our 35 to 40 percent rate.
It's no secret why corporate profits are going overseas, and thus destroying American jobs at home. High corporate tax rates.
I go back to the work of Laurence J. Kotlikoff, economics professor at Boston University. In his models for the elimination of the U.S. corporate tax, the real wages of unskilled and skilled workers rise by 12 percent, real GDP growth increases 8 percent and capital investment soars 23 percent.
In other words, significant U.S. corporate tax reform would jack up wages and jobs—predominantly middle class wages and jobs. It would attract investment from all over the world. And to U.S. companies that shelter profits overseas, we'd be able to say, "Come home to America."
The growth impact of significant corporate tax reform would also drive up the value of the dollar and allow the Federal Reserve to normalize interest rates much more quickly. That, by the way, was the Reagan policy. It worked for two decades, producing nearly 45 million jobs and roughly 4 percent wage growth.
Lower tax rates and King Dollar. It's a recipe for prosperity. Will any of you Republicans who claim to be Reagan followers make that case? Where is your Reagan economic voice?