War on American Business

After the Easter recess, ultra-liberal Los Angeles congressman Henry Waxman will attempt to slam American companies that are trying to obey SEC disclosure laws by properly accounting for the repeal of an important prescription-drug tax credit. What’s new in this bad story? It’s the announcement of Waxman’s Star Chamber hearing that will subpoena internal documents from leading American companies like AT&T, Verizon, Caterpillar, Deere, 3M, and Valero.

According to post-Enron accounting rules, thousands of American companies are required by law to immediately declare these non-cash charges. The American Benefits Council estimates up to $14 billion in corporate profits could be lost. So in other words, Waxman is in effect declaring war on bookkeeping.

The real trouble here is that by removing the tax benefit, these very same companies may reduce or even eliminate retiree drug benefits, and then thrust them on We the Hapless Taxpayer through a big cost-shift to Medicare. Instead of blaming business, Mr. Waxman should blame himself and Obamacare.

On Tonight's Kudlow Report

This evening at 7pm ET:

HENRY WAXMAN'S STALINIST SHOW TRIALS FOR CEOs

- Richard Socarides, Brady Klein Weissman LLP Democratic Strategist, Attorney; Fmr. Senior Advisor to Bill Clinton
- Don Luskin, CNBC Contributor; Trend Macro Chief Investment Officer

ENTITLEMENT APOCOLYPSE!

- Andrew Biggs, AEI Resident Scholar; Fmr. Social Security Admin. principal deputy commisioner
- Robert Reich, Fmr. Labor Secretary; Author, "Supercapitalism"; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy

CONSUMER CONFIDENCE REBOUNDS: ARE CONSUMERS READY TO SPEND?
THE MOTHER OF ALL JOBLESS ECONOMIES

- Dana Telsey, Telsey Advisory Group Chief Research Officer; Retail Analyst
- Derek Thompson, The Atlantic staff editor

OIL MINISTERS GONE WILD
- Carl Quintanilla, Cancun, Mexico

KING DOLLAR & $100 OIL?

- Kevin Kerr, Kerr Trading International President & Chief Trading Officer
- Addison Armstrong, Tradition Energy Dir. of Market Research; CNBC Contributor

iPHONE - WILL AT&T LOSE ITS MONOPOLY?
- Jon Fortt, Senior Writer Fortune Magazine

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tax Hike Assault

We are facing an across-the-board tax-hike assault from federal, state, and local sources. This, despite a precarious outlook of a return to long-term economic prosperity after an especially deep and painful recession.

Of course, tax hikes drain cash from the private-sector economy. In supply-side terms, they undermine incentives to work, invest, and take risks by reducing the after-tax take-home reward.

After-tax incentives could drop 15 percent or more over the next few years, lifting the top tax rates on ordinary income to 45 percent from 35 percent, and to 25 percent from 15 percent on capital gains. Why in the world would we want to tax those who are most likely to invest, save, and take risks in an economy that desperately needs all three?

And let’s be very clear regarding class-warfare attacks on so-called rich people: A tax on investment is a tax on jobs, wages, and productivity. Without investment and risk-taking, the capitalist machine cannot and will not function efficiently. As Jack Kemp used to say, “You can’t have capitalism without capital. You can’t love the employee and hate the employer.”

Worse, these taxes are designed to finance an ever-growing government-spending share of the economy -- even though government spending is itself the greatest tax of all on private enterprise, as Milton Friedman taught us years ago.

Regrettably, states across the country are looking to tax almost anything that moves. Governors say they have to. (No, they don’t.) It’s a matter of priorities, political will, and economic vision. Do we want to let people keep more of what they earn and invest? Or do we want to grow government to record levels? That’s really the question.

As you know, I believe those economies that grow the most are the ones that spend and tax the least. History bears this out. This is why I fear that the United States is now going in the wrong direction. But political help may be on the way: A spate of Republican businessmen and women are running for high office. That could bring about a very positive turn of events. There’s also the tax-and-spending revolt -- including the tea-party revolt -- which could have a huge impact on the 2010 and 2012elections.

An Interview with Virginia Governor Bob McDonnell

With all these governors raising sales taxes on pole-dancing and everything else in sight, here's a guy with the political will and leadership to cut spending on education, health and union pensions without raising taxes in order to close a $4 billion deficit. Hats off.

High Interest Rates, Not Deficits, Cause Inflation

Treasury rates jumped last week as the 10-year bond moved up to around 3.85 percent, about 20 basis points or so in the last week or two. Former Fed head Alan Greenspan calls this the “canary in the coal mine,” and he blames budget deficits and the huge overhang of the federal debt. Ask almost anybody in the money business, including the bulk of the investor class, and they will tell you that budget deficits drive up interest rates. I’m here to tell you that is wrong. It may seem reasonable, but it’s still wrong.

This “deficit causes high rates” theory embraced by Alan Greenspan, and by David Stockman during the Reagan years, and by Robert Rubin during the Clinton years, has no statistical basis in fact. Actually, one could make the case that higher deficits are consistent with declining interest rates, since the worst deficit numbers typically occur when the economy is in recession and there is no private credit demand. During economic recoveries, deficits shrink as tax revenues come pouring in. But interest rates rise during expansions as real investment returns improve.

The real cause of high interest rates? Inflation.

If prices are rising, investors demand higher interest rates as inflation premiums to compensate for their money-value loss. Basically, long-term interest rates fell from 1980 all the way through 2009 — 30 years as the inflation rate dropped from 14 percent to roughly zero. That’s three decades of deficits going up and down and up and down. Rates continued to fall.

Let me add that a stable King Dollar holds down inflation. That is a much more powerful tool for interest rates than business-cycle swings in the budget deficits.

Oh, by the way, deficit/interest-rate mongers fall into a tax-hike trap. The real issue for holding back deficits over the long run is to curb excessive federal spending and to keep marginal tax rates low enough to spur incentives for economic-growth-producing tax revenues. In other words, the Laffer curve.

Lower tax rates mean a stronger economy. A stronger economy means more tax revenues. More tax revenues mean lower deficits. And keep King Dollar intact to hold back the inflationary tide.

Of course, the real problem here is federal spending, not taxes.