Save America. Cut the federal budget. Along the way, spending restraint would reduce deficits and borrowing. In theory, that would make it easier for the Federal Reserve to control the money supply and hold down inflation and, by the way, cutting the federal budget almost always means reducing anti-business regulations because all these programs have major strings tied to them.
Think diversity, equity and inclusion or just other anti-business actions. Just think about holding down the supply-side of the economy, which itself is inflationary.
There's a lot of work to be done for pro-growth tax reform, especially extending the highly successful Trump tax cuts and I'm sure that's coming as the House Republicans put together their pro-growth agenda, but really, starting at the beginning is starting with the budget, and starting with the budget goes back to House Speaker Kevin McCarthy's very excellent speech yesterday at the New York Stock Exchange that included a discretionary spending rollback to FY-2022 and a 1% budget cap for annual spending growth thereafter.
The package would also include clawing back $50-70 billion of unspent COVID money. One item not in Mr. McCarthy's speech would be an attempt to repeal Joe Biden's cancelation of student loans, which would be a $500 billion savings.
He did mention H.R. 1, the Lower Energy Costs Act, which I refer to as reopening the fossil fuel spigots. That'll increase growth and reduce inflation and another part of the package is the REINS Act, where any regulatory action by the federal bureaucracy over $100 million would require a congressional law.
Think how wonderful that would be in stopping the crazy EPA tailpipe action that would basically end the internal combustion engine without anybody ever taking a vote. The GOP package is also going to include work requirements for Medicaid, food stamps and welfare. That's what Bill Clinton and Newt Gingrich did about 20 some-odd years ago.
Reportedly, it would rescind the $80 billion IRS package for 87,000 new agents, which would go after principally people making under $400,000 a year, and the Republican package would also reportedly repeal the green tax credits in the misnamed Inflation Reduction Act, which has now been re-estimated to cost well over $1 trillion, and with uncapped refundable tax credits with virtually no time limit, that whole goofy bill could wind up costing $3-4 trillion over the next 35 years. Believe it or not, serious people have made these guesstimates.
The total savings from all these measures could be somewhere around $4.5 trillion over the next 10 years, a nice chunk of change in return for a one-year increase in the debt ceiling. The final package is supposed to be decided on today by House leaders and voted on as early as next week. Now, one quick technical point: President Biden, who doesn't want to play ball at all, who hasn't responded to Kevin McCarthy in 75 days since their last meeting, keeps saying that the House Republicans have to come up with a budget because his administration finally put a budget out, although it was a month late, but Biden's just blowing smoke here.
Actually, the House will put out a budget resolution sometime in the next month or so, and that is the equivalent to the administration budget, but as Biden well knows, this debt ceiling package is a separate legislative item. It is not the budget resolution, which will be a 10-year item, presumably subject to reconciliation in the U.S. Senate, although it's worth noting that the Democratic Senate has never put out a budget ever.
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McCarthy & Co. will have a very strong debt ceiling package with no new taxes, a nice, regulatory rollback and a decent amount of spending restraint.
It's pro-growth and counter-inflationary. It's bullish for stocks and for blue-collar, typical working families, and it will finally put an end to the frenetic Biden spending that has given us the first dose of serious stagflation in 40 years. Save America. Go on a second date, the two of you.
This article is adapted from Larry Kudlow’s opening commentary on the April 18, 2023, edition of "Kudlow."
