Lawrence Kudlow‘s latest column explains how the economy would benefit from an agreement soon to extend the “Bush tax cuts.”
Tax-cut certainty is so vital right now because the anemic economic recovery may be moving toward deflation. That’s the message of a gold price that has collapsed by near 20 percent, falling from around $1,900 an ounce to the mid-$1,500s. With a risk-averse economy at home, and with the Greek and European financial crises abroad, the demand for dollars seems to exceed the dollar supply printed by the Fed. This could be solved by more quantitative easing. But a better approach for a system already oversupplied with unused liquidity would be the extension of tax-rate growth incentives, not more monetary pump-priming.
The uncertainty over the Bush tax cuts already has caused a number of business leaders to threaten a hiring freeze and a dampening of investment until they can figure out the after-tax cost of capital and rate of return on investment. Hiring has slowed noticeably in recent months. And a number of Wall Street economists are marking down the anemic recovery even more, suggesting that the 3 percent growth at the end of last year, which faltered to 2 percent growth in the first quarter, could be even less in the period ahead.
A bunch of CEOs have even formed their own march on Washington. Eighteen of them just wrote to Treasury man Timothy Geithner, begging him to oppose tax-rate hikes on dividends (from 15 to 45 percent) and capital gains (from 15 to near 30 percent, taking the “Buffet Rule” into account). “Equity capital is the life blood of investment and job creation for U.S. companies,” they wrote. And they argued that the administration’s tax-hike plans would do great harm to American competitiveness and capital formation.
