Kudlow: We are likely in an inflationary blowout
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The Democratic Party is now in a tizzy over something called CBO projections of spending revenues and the economy.
As you may know, CBO stands for Congressional Budget Office. It is allegedly and statutorily nonpartisan. I have had numerous dealings with them down through the years, first as a budget deputy under President Reagan, most recently as NEC director under President Trump, and lots and lots of times in between.
Let me say at the outset these are very nice people. They are very smart. They are well-schooled. They have a lot of experience. I know many of them, and I’m sure they're patriots.
But it behooves me to note that the CBO does not have a good forecasting track record. Now you might say, who does? And that's a very fair question. Forecasting's a tough business. Nobody ever gets it all right. or even all wrong. It's just a question of economic models.
So, as you know, I’m an Art Laffer guy. That is I believe lower tax rates produce higher tax revenues from stronger employment income and growth, plus, less tax avoidance. This is called dynamic scoring. You cut taxes and you're gonna get a much better economy with much higher revenues.
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You raise tax rates, you're going to get a much worse economy with lower revenues. I and my supply-side colleagues have argued this for many decades. I believe we have a very good forecasting track record on these broad points. The CBO, in its wisdom, basically does not agree.
They have incorporated a tiny bit of Laffer curve dynamic scoring – just a teensy weensy tiny bit.
Now, the White House is attacking the CBO because the former believes 80 billion in more IRS spending for tens of thousands of new agents will generate $400 billion in new revenues because of all the tax cheats out there. The CBO says no. You'll only generate $125 billion.
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I'm tempted to say a pox on both your houses. The whole debate is a scam. The CBO intends to put out its revenue and spending estimates by close of business Friday. In all likelihood, they're going to disappoint the Democrats and their big government socialist plans by scoring higher spending and lower revenues. That's my guess.
I also hear that Speaker Pelosi would like to have a House vote on the Build Back Better spending and taxing and regulating bonanza on — get this — Thursday night – even before the CBO scorecard comes out. in some ways. That's hilarious. It's real Laurel and Hardy-Keystone Cop stuff.
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But back in 2017, when we Trump folks were pushing major tax cuts across the board and the CBO did not agree with our dynamic scoring, our Democratic friends said the CBO was the gold standard of government budget accounting.
Now it appears that they are shorting gold and criticizing the CBO because they're not going to get what they want. And when Democrats don't get what they want they tend to just throw the rules out the window.
Ok. Want to know the truth? I don't really care.
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For one thing, the spending package is going to run $4 or 5 trillion, not just $1.75 trillion.
For another thing, the entitlement state is penalizing work and subsidizing non-work stay-at-home. No work requirements will sink the economy, and society, and families, and businesses.
For another thing, the massive regulations attached to all this spending will throw large buckets of sand in all our economic gears. Plus, $550 billion in Green New Deal subsidies will destroy the fossil fuel industry, causing literally millions of job layoffs, significantly higher energy prices, and significantly lower energy supplies. Also killing the economy.
And finally, huge tax hikes hidden everywhere in this legislation will penalize success, reduce supply-side growth incentives, and further sink the economy. Spending will soar, revenues will fall, and we will have a nation of even more unhappy campers than we have right now.
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And my final point is we are probably in an inflationary blowout period. In the fourth quarter ending December, you could have 8% growth and 8% inflation, virtually all caused by excessive federal spending and central bank money printing. With this kind of growing inflation threat, we shouldn't be spending one more nickel of taxpayer money. And we should be cutting taxes and increasing energy production.
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Janet Yellen said the inflation may peter out by the second half of next year. Joe Manchin said we should have a spending pause until inflation comes down. So, I’m touting an economic romance. Mr. Manchin and Ms. Yellen should get together and agree no new spending at least until the second half of next year.
I don't care what the CBO estimates are. Or how many IRS agents scour the country looking for nonexistent tax cheats.
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So, save America – kill the bill. You can kill it before the CBO scores come out or after the CBO scores come out. I don't care. Just kill the bill.
And that's my riff.
This article is adapted from Larry Kudlow's opening commentary on the November 17, 2021 edition of "Kudlow."
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