Obama’s No-Growth State of the Union

By Larry Kudlow

Thursday, February 14, 2013

 

By far the best line from this week’s dueling State of the Union messages came from Florida senator Marco Rubio. Nice and simple, and right to the point:

 

“Presidents in both parties — from John F. Kennedy to Ronald Reagan — have known that our free-enterprise economy is the source of our middle-class prosperity.”

 

That’s a brilliant summary of pro-growth policies, on the supply-side and in a free-market context.

 

Kennedy slashed tax rates and held down the budget. So did Ronald Reagan, who borrowed Kennedy’s ideas: smaller government, lower tax-rate incentives, and a thriving middle class, where the economic pie grows ever larger.

 

In short, the Kennedy-Reagan policies were growth policies.

 

On the other hand, while President Obama quotes John F. Kennedy, he doesn’t draw the dots to Kennedy’s supply-side tax reforms. He does mention the phrase “tax reform,” but he’s not talking about lowering rates across the board while broadening the base to reduce deductions. Rather, he means penalizing companies that operate overseas and favoring companies at home that do what he wants them to do.

 

Think of it as taxation as a form of industrial policy, replete with tax targeting. This is decidedly anti-growth. And while opposing the sequester spending cut, Obama wants another $800 billion in taxes. More anti-growth.

 

Even with my low expectations for the speech, I had hoped President Obama would follow through on his occasional pledge for corporate tax reform. But he didn’t. As a result, he missed a great growth opportunity. In fact, the president’s State of the Union message had no growth elements at all. No growth message in a precarious economic recovery that is averaging 2 percent, grew only 1.4 percent last year, and actually contracted in the fourth quarter.

 

Where’s the growth, Mr. President?

 

He could have proposed lowering business tax rates from 35 percent (really 40 percent when you figure in the states) to 25 percent. He could have suggested that small businesses, now paying 40 percent, be made eligible to become C-corps, so that their tax rates also drop to 25 percent. He could have proposed repatriating roughly $1.5 trillion of corporate profits overseas, bringing them back home with a tax holiday, or even better, a permanently lower rate. Doing so would be like putting free money into our domestic economy for new investment and job creation.

 

But he didn’t do it. Instead he wants to penalize companies operating overseas and somehow reward manufacturers who create jobs at home.

 

But what exactly is a manufacturer? Define it, Mr. President. And does Obama actually think he can overturn the entire interrelated global economy? I don’t think so.

 

Former Obama economist Austan Goolsbee tells me again and again that the president is for a full-fledged tax reform. Well, you’d never know it from his latest State of the Union message.

 

Instead of real tax reform, we got an incredible array of government intervention, spending, and regulating: More green energy. More housing subsidies. Another $50 billion for infrastructure. A higher minimum wage. Manufacturing hubs. And more money for the education unions, where the compensation goes up and school scores go down.

 

It was a liberal wish list that will expand the government reach deeper into the private economy and society.

 

You know, if this stuff would have worked to promote growth over the past four years, well, it would have already worked. But obviously it hasn’t worked, given the weakest recovery in modern times going back to 1947.

 

Obama even threatened Congress with a new Energy Security Trust, funded by taxing oil and gas companies. He also pushed for climate-change legislation, along the lines of Lieberman-McCain cap-and-trade (and tax). Failing that, he’ll unleash the EPA — which means energy costs will skyrocket and the coal industry will be destroyed.

 

And where was the Keystone pipeline, Mr. President? That’s an easy growth- and job-creating measure. And what about high-tech drilling and fracking for natural gas on federal lands? Another easy growth- and job-creating policy.

 

No, this was not a growth speech. This was a government-planning speech. And it was completely unlike the growth message delivered by Senator Rubio.

 

Here’s one more from Rubio: “Raising taxes won’t create private-sector jobs. And there’s no realistic tax increase that could lower our deficits by almost $4 trillion. That’s why I hope the president will abandon his obsession with raising taxes and instead work with us to achieve real growth in our economy.”

 

Rubio delivered an economic primer on the quest for life, liberty, and the pursuit of happiness. President Obama outlined his scheme for government collective action to transform the country into his liberal progressive vision. It’s a wonderment that a freshman senator can get the story so right, while a second-term president can get it all wrong.