Economic policy

Larry Kudlow: This is the worst economic policy imaginable in a time of great crisis

So, we start tonight with a familiar phrase: Save America, kill the bill.

Back-to-back inflation numbers, 9.1% CPI, 11.3% PPI – you don’t want to spend another trillion dollars worsening an already out-of-control inflation rate.

Anyone who votes for more social or climate spending should seriously get their heads examined and remember that history shows that high inflation always leads to recession.

This time will be no different. I believe we are at the start of a recession right now. So anyone who votes for a trillion tax hike should have their head examined. It will only make the inevitable recession worse and that brings me to an issue that came up last night on the show where Senator Joe Manchin was quoted as suggesting that the proposed tax increase on LLCs and transmissions of Subchapter S would be nothing more than closing a FICA loophole.

Congressman Kevin Brady strongly suggested that was not the case and that Mr. Manchin was referring to the net tax on investment, which was not a loophole, but rather would have increased the rate of small business tax of 3.8% – a devastating blow for the most important economy sector.


Senator Joe Manchin, Democrat of West Virginia and Chairman of the Senate Energy and Natural Resources Committee, speaks at the CERAWeek by S&P Global 2022 conference in Houston, Texas, United States, Friday, March 11 2022. (Photographer: F. Carter Smith/Bloomberg via Getty Images/Getty Images)

So, I did some research. Mr. Brady is absolutely right and Mr. Manchin is absolutely wrong. When the net investment income tax was created as part of ObamaCare, it was meant to apply only to investment income. Business income of small sole proprietorships and family businesses was specifically exempt. The exemption was intentional.

Also, the net investment tax does not fund Medicare. It was originally passed as part of a reconciliation bill and therefore allocating funds from this tax to the Medicare Hospital Insurance Trust Fund would have represented double counting of the same revenue. , i.e. counted once as deficit reduction and then a second time as a means of hospital insurance expenditure.

You can not do this. It’s a gimmick. It violates the Byrd Rule. So Mr. Manchin and Mr. Schumer confuse and confuse in order to somehow sell this net investment tax as just a way to fund Medicare, but it’s not true.

A general recipe is a general recipe. It could be used for food stamps, social assistance, housing subsidies, or any other form of discretionary spending. Like I said, it’s just rubbish to sell bad policy. The NIIT expansion of 3.8% corresponds to an 11% increase in the proposed tax rate for family businesses. But there’s more because the Manchin-Schumer proposal would also limit the ability of small businesses to fully deduct their losses during an economic town center by extending the so-called “excess business loss limitation” to unincorporated taxpayers. society.

Now there is another very stupid idea. By the way, C-corps are allowed to deduct losses. Why not S-body? And, in a memo to House and Senate leaders, a few hundred business groups pointed out that the combination of raising the net investment tax by 3.8% and imposing Strict limits on small business loss deductions would increase the tax burden on small businesses by more than $400 billion over 10 years. It would be a crushing tax hike.

NFIB small business confidence has already plummeted. The small business sector has lost jobs in 3 of the last 4 months. This is further illustrated by the decline in household employment, from which the national unemployment rate is derived.

Big business payrolls have gone up, but small business jobs have shrunk. If you know that, and you know that the Fed is going to have to cut double digit inflationso why impose a huge tax hike on the small business sector?


There are plenty of other bad tax hikes in this proposed reconciliation package, including a minimum corporation tax of 15% on accounting profits, which would eliminate upfront expenses and other statutory credits and reductions that are used to IRS profits.

All of this is the worst economic policy imaginable at a time of great crisis. If Congress had any brains, it would cut taxes, deregulate industry and energy at all levels, and freeze domestic spending.

This supply-side growth-friendly approach could mitigate the economic cost of the Fed inflation fight, but the left wing of the Democratic Party will not back down. Bidens’ modern, progressive, woke monetary theory that destroyed a perfectly healthy economy in just 18 months is back. They won’t listen to advice.


They are in denial about the situation. They ignore the numbers, and they succeeded in not only bringing down the economy, but alienating virtually the entire country.

In the words of Oliver Cromwell in the British Parliament in 1653, “in the name of God, go!” So, allow me an update: Save America, kill the bill.

This article is adapted from the opening comment by Larry Kudlow in the July 14, 2022 edition of “Kudlow”.