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Larry Kudlow: Paul Ryan — Pro-Growth Supply-Sider

Republican VP candidate takes his cues from the Reagan-Kemp playbook

In the two weeks since Mitt Romney chose Paul Ryan as his running mate, the entire Republican Party has been rejuvenated. Gov. Romney himself has been re-energized. After losing ground in the polls this summer, he’s once again drawn even with the president. Wisconsin is now in play. Even senior voters in Florida have signaled heavy approval of Romney-Ryan.

I know vice presidents aren’t supposed to be so influential. Political scientists say the top of the ticket is what matters. But Ryan is disproving that.

And yet I hear and read some grousing from conservative supply-side colleagues that Ryan is no longer the Jack Kemp, supply-side-growth guy he once was. Instead, they say he has become a root-canal Republican who obsesses about entitlement debt bombs and deficit reduction. They say he’s wedded to the Congressional Budget Office in a kind of budget-austerity, Stockholm syndrome.

The whisperers say this happened to Dave Stockman years ago at the Office of Management and Budget. Now they say it’s happening to Ryan at the head of the House Budget Committee.

These charges are completely false.

On the eve of the convention, I had a lengthy interview with Ryan. Over and over, he talked about the need for economic growth through supply-side tax reform, spending restraint, deregulation and entitlement fixes.

Previewing his convention speech, Ryan said, “We have to show the country that we have a pro-growth plan to get people back to work, to get this economy growing again.” He said, “We want to get back to the American idea (of an) opportunity society with a safety net; (a) society of growth, opportunity, of upward mobility.”

This is Ronald Reagan. This is Kemp. This is growth, not root canal.

The congressman said Team Romney, with a 20 percent across-the-board tax cut, is aiming at an average growth rate of 4 percent over the next four years. “If we can do that,” he said, “which we think we can with the right economic-pro-growth policies, we can get 12 million people back to work.”

Ryan opposes crony capitalism and corporate welfare. He wants Washington out of the game of picking winners and losers. He argues that if President Barack Obama raises the top tax rate on small businesses to over 40 percent, it would kill growth and jobs. He argues in supply-side fashion that lowering tax rates and plugging loopholes will produce more income, not less.

At one point in the interview, Ryan summarized the Romney-Ryan position: “Pro-growth policies, energy policy, regulatory reform, tax reform and spending cuts.” As I have said before, I believe the Romney platform is the most conservative Republican policy since the Reagan era. Ryan bolsters it.

Ryan also said this: “Let’s get the size of government back down to where it has historically been: 20 percent of GDP by 2016.” In other words, significant spending restraint. This is pro-growth, too.

Supply-side mentor Art Laffer has been arguing for years that lower spending as a share of gross domestic product is essentially a tax cut to grow the economy. In fact, with a 20 percent reduction in marginal tax rates, and significant spending restraints, it’s the most powerful economic-recovery tonic possible. And let’s add to that: The Romney-Ryan plan will slash the corporate tax rate from 35 to 25 percent — a monumental growth measure.

Depending on how fast the spending comes down, I calculate that Romney could lower the spending baseline by as much $1 trillion in his first term. This, along with economic-growth incentives and upper-bracket loophole-closers, will pay for supply-side tax cuts without raising taxes on the middle class. In fact, this tax reform will drop middle-class tax rates near 12 to 20 percent — a significant reduction from current law.

This comprehensive view of growth incentives and deep spending cuts completely counters the false liberal argument that somehow middle-class taxes have to go up. With a comprehensive growth plan, middle-class taxes go down.

Ryan expressed dismay at the latest CBO recession forecast concerning a possible rollback of the Bush-era tax cuts. But he said the first order of business for the Romney administration will be to fix the tax cliff and avoid another recession, which would be devastating to America’s psyche.

Finally, Ryan summarized his monetary strategy in two words: sound money. He said, “We want to pursue a sound-money strategy so that we can get back the King Dollar, as you say it, Larry.” Indeed, the Republican platform committee, hopefully with Romney’s backing, is including a gold-commission study that would put much-needed discipline into Fed policy.

So let me say this to my skeptical supply-side friends: I don’t see one whiff of evidence that Ryan has departed the pro-growth model. Flatter-tax reform, spending restraint, deregulation, bolstering entitlements — this is all from an updated Reagan-Kemp playbook.

And it’s a playbook that’s going to win another big election.

Larry Kudlow National Review Online’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web blog Kudlow’s Money Politic$. Click here for more information, or click here to contact him.

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