What (Fred) Thompsonomics Might Look Like

Will economist Lawrence Lindsey bring his ideas about taxes to the campaign?

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"Like Reagan without the new ideas," is the slam the New York Observer puts on likely Republican presidential hopeful Fred Thompson in its new issue, and anyone watching the former U.S. senator and Law & Order actor perform on last night's showing of CNBC's Kudlow & Co. would probably never ask him to play a policy wonk in a film. Thompson mostly stuck to general, tried-and-tested GOP themes during the interview. (Excerpts of the chat can be found at host Larry Kudlow's must-read blog.) About the only aspect of domestic economic policy that seemed to really fire Thompson up was corporate taxes, which he wants to cut—especially after Kudlow informed him that countries in "old Europe" were already slashing theirs.

Well, maybe if and when Thompson officially announces his candidacy, he'll be become the "man with a plan" in a field that overall seems a little light on ideas. In the so-called ideas primary, "Rudy McRomney" are so far eschewing the sort of detailed agendas one can find on the campaign websites of many of their Democratic rivals.

For now with Thompson, analysts are left to examine his growing campaign team for clues as to what his policy agenda will be. So what does the likely addition of former Bush economic adviser Lawrence Lindsey reveal about the nature of Thompsonomics? Lindsey, also a former Harvard prof and Federal Reserve governor, became a hero of supply-side economics proponents after he wrote the 1990 book The Growth Experiment, a detailed treatment of the Reagan tax cuts. Lindsey went into the project as a skeptic but came out as a believer.

Yet Lindsey lost some credibility among economic conservatives during his role as a public advocate of the 2001 Bush tax cuts. While certainly better than a tax increase in the eyes of this crowd, that tax plan was seen as more of a political tool than a reflection of smart economics. Not only did it fail to cut taxes on investments (a defect remedied by the 2003 tax cuts) but it phased in the marginal rate cuts. That, according to supply-siders, encourages people to push economic activity forward to when its fruits will be taxed at a lower rate. That defect stripped the cuts of much of their oomph to help the economy recover from the 2001 recession. At the time, Kudlow himself seemed puzzled and discouraged that the 2001 cuts seemed to leave "the investor class" out in the cold.

Now, I don't know what sort of tax plan Lindsey will help devise for Thompson, but he does outline a number of ideas in his book. Taken together, it seems clear that Lindsey views the tax code as a way of promoting economic growth and dealing with social problems: "Our tax system should do more than foster growth. It should help us provide for those who cannot provide for themselves." Among the features of his "tax code for the future" are the following:

–A 19 percent flat tax on all earned income including capital gains.

–Increasing the personal exemption and expanding the child-care credits.

–Indexing all capital gains and interest income for inflation.

–Taxing corporate cash flow rather than profits and allowing the immediate expensing of all business investment.

–Limiting the deduction for mortgage interest.

Will the Thompson plan resemble the Lindsey plan? Even Fred probably doesn't know yet.

Questions or comments can be sent to jpethokoukis@usnews.com.