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[Terry Allison]

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Let Us Go For a Pro-Growth Debt-Ceiling Deal
By Larry Kudlow
July 19, 2011

As uncertain and unruly and disheveled as the debt-ceiling debate may be, there are still good grounds to reach a deal. It could help the economy. It could keep the policy ball moving in the direction of smaller government. It could add a key business tax incentive for economic growth. And it could even stabilize the dollar.

There really are two problems here. First is raising the debt ceiling to avoid default. That is a real good idea. Second is stuffing enough spending and deficit reduction into the deal to accommodate the newly militant demands of S and P, and Moodys, who want roughly 4 trillion dollars in cuts over ten years in order to keep our AAA rating.

But here is the tricky part for me. What kind of numbers are we talking about in the event of a last-minute deal? So many of these numbers are phony, and they often reflect baseline fiddling and out-year budget cuts that never materialize.

But the credit raters are on the war path. The small deal offered by Senator McConnell would raise the debt ceiling in three parts. But with only 1 trillion dollars in so-called cuts, this Plan B will not pass the S and P, and Moodys test. The number is too small.

Then there is the grand design for President Obamas big-picture deal. It is over 4 trillion dollars, but it includes taxes that look to be off the table from the Republican standpoint.

But this has me thinking. Assuming there are real spending cuts in the Obama package, I wonder if it is possible to insert a business tax cut in the deal that would repatriate foreign earnings of U.S. companies. Let us say with a 5 percent tax holiday. And let us say it is a two-to-three-year plan, or lasts until full-fledged business tax reform can come about. That would be a big plus for growth and jobs. We are talking a base here of nearly 2 trillion dollars in corporate cash that one way or another can come into our economy.

Next up is cut, cap, and balance. Did Obama budget director Jack Lew open the door to this Republican House plan during the Sunday shows? This is my preferred option right now. The burden of government on the economy would be reduced from roughly 24 percent to 20 percent. That narrows the wedge between work and reward. It strengthens private market resources by curbing government redistribution. This is probably the biggest philosophical sticking point in the whole political debate. Of course, I am for free-market capitalism.

But here too I am not sure about the numbers. Various news accounts talk about a 2.4 trillion dollar debt-ceiling increase with an equal spending cut. I presume that is a ten-year number on the spending side. But that would not pass the S and P and Moodys test of 4 trillion dollars.

Other accounts of cut, cap, and balance use the Paul Ryan fiscal-year 2012 spending cut of 110 billion dollars. That would be a home run. It would come to 5.8 trillion dollars over ten years and would certainly satisfy the credit-rating agencies. In other words, the GOP House plan is far better from a rating-agency standpoint than any other plan out there. That is, if the Ryan numbers are actually part of the plan. But we do not know the numerical details yet. That is a problem.

We have learned from the cash-flow analysis of Treasury revenues and government spending that there just has to be a debt increase. As many have already written, the Jay Powell bipartisan policy analysis shows that you can cover the interest on Treasury debt along with Social Security and health entitlements. You could pay the Defense Department vendor bills. You could keep unemployment insurance benefits. But you had still be 134 billion dollars short for the rest of the August budget.

The U.S government has 172 billion dollars of revenues coming in that month. But prior budgets have obligated 306 billion dollars of spending. So you are looking at a 44 percent budget cut. Maybe a good idea, but not realistic in one month. It is just too big a shock to the system. And according to the Powell analysis, you could not pay active duty military, veterans, or the FBI, to name just a few.

So the revenue-allocation view of not raising the debt ceiling really does not hold any practical water. Why some of my conservative friends keeps pushing this is beyond me.

So is a deal possible? I still think it is. The high end of the budget cuts from the White House and the House GOP possibly could be coupled with a tax deal on repatriation and even future tax reform. After all, economic-growth measures should be crucial in this sputtering economy.

Reducing the corporate-tax wedge and reducing the budget-spending wedge, to quote my friend Arthur Laffer, would provide a tonic for the economy. In other words, a debt deal can still work and promote growth.

Lawrence Kudlow is host of CNBCs The Kudlow Report and co-host of The Call. He is also a former Reagan economic advisor and a syndicated columnist. Visit his blog, Kudlows Money Politics.

Another Alternative and a Better Choice. Work at Home
There is a community where an entrepreneur can gain valuable information on a work at home business.

Work at home can happen for you, if you are motivated. Now, there is a work at home community that you can work with and gather as much information that you need to succeed. The community name is Tomorrow's Home Business social community and is located at this address http://tomorrowshomebusiness.ning.com.

 

In this work at home community, the business entrepreneur will be able to read blogs and watch videos for business, or just for pleasure. With a couple of RSS feeds coming to the main page, the entrepreneur can even stay informed of what is happening in the world. There is something here in this community for everyone.

Groups like the Maniac Marketers come in and post their blogs in the community, giving valuable information for their Health and Wellness businesses. If you would rather watch videos of the TriVita videos, you can do that, too. Or if you just want to hang out and relax, you can do that, too! There are many music videos like Johnny Cash, Waylon Jennings, Pink Floyd, Eric Clapton, and Seasick Steve! Or if you want to learn about handcrafts or see the equally oldest Ford antique car, a 1903 Model A Ford, you can do that, too! Or maybe you need an inspirational video clip! There are many choices of inspirational clips, such as Al Pacinos locker room speech in Any Given Sunday, or Mel Gibson as William Wallace motivating the Scottish men men before battle in Braveheart; or Sylvester Stalone as Rocky and how he motivates himself in the boxing ring, or even his inspirational conversation with his son, and who can forget those chants for Rudy in the movie Rudy!

When you become a member of Tomorrows Home Business Social Community, there is a profile created just for you. You can use the standard set-up on your page. Or you can be as creative as you want to be. For an example check out my profile page at Terry Allisons Profile Page. I use my profile page as a dream-building tool. I have always wanted a Harley-Davidson motorcycle. I have learned to keep this dream in front of me.

A work at home community for people wanting to find out more information on starting their own work at home business. You can also subscribe to this RSS feed to receive up-to-date information from the community blogs Tomorrow's Home Business Social Community RSS Feed

Terry L. Allison, Sr.
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