Therapy From Doctor Kudlow

The economic boom still has some life left.

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Larry Kudlow blogs that he isn't ready to give up on the Bush boom just yet: “Despite Friday’s soft jobs number, I do not believe we are heading into a recession. Any slowdown in the U.S. will be very short-lived. I’m sticking with Goldilocks 2.0.”

The host of the highly rated CNBC show Kudlow & Co.—and CapCom’s maximum FOB (Friend of the Blog)—also had a provocative recent post on John McCain, who just got an endorsement from supply-side economics icon Jack Kemp, and economic policy:

Sen. McCain has been wobbly on tax cuts. Mitt Romney’s attack ads continue to point this out. My own view, after interviewing Mr. McCain several times over the past year, is that he’s more interested in spending and earmark restraint then he is in cutting taxes. But he did vote for the Reagan supply-side program in the 1980s (although he opposed the Bush tax cuts in recent years).

That said, I believe the real McCain value-added is his robust foreign and military policy experience. He was absolutely right on the Petraeus surge. And he was absolutely right on criticizing Don Rumsfeld for bungling the post-Saddam period in Iraq. There’s every reason to believe that a President McCain would be a very strong leader in the global war on terror.

Circling back to economic policy, I’ve got two key words for a potential President McCain: Phil Gramm. Look for a President McCain to hand the economic policy reins over to the former Texas senator. Gramm would either be Treasury Secretary or Chief of Staff in a McCain White House. This is good.

My take: McCain had a very interesting tax plan when he ran back in 2000, one even his advisers admit was far more ambitious than his current effort. The 2000 plan would have moved some 17 million taxpayers from the 28 percent bracket into the 15 percent bracket and cut corporate tax loopholes for some $150 billion in savings over five years. In 2000, McCain economic adviser Kevin Hassett described the plan this way:

Mr. McCain’s long-term objective is to move to a flat-rate structure by cutting marginal rates from the bottom up. This would encourage work, investment, and enterprise, allowing government to extend tax brackets upward as the supply-side benefits of the plan take hold, rather than by initially cutting the highest rates paid by the wealthy. The bottom-up approach is a credible reform mechanism that promises to lock recalcitrant Democrats into a process that will move quickly to a flat tax, provided supply-side benefits are as high as Republicans believe they will be.

This time around, McCain is calling for the elimination of the alternative minimum tax and making the corporate R&D tax credit permanent—as are Barack Obama and Hillary Clinton. Unlike those two Dems, though, McCain says he want to permanently extend all the Bush tax cuts—though he famously voted against both.