Some good news today, in two parts. First, more Americans are working. This is unequivocally good. Corporate salaries rose by 471,000 in July, with wages increasing 5.2% year-over-year, and 6.2% if you’re a blue-collar employee.
The unemployment rate fell to 3.5%. Small business oriented household survey, not quite as strong: +179K.
Therefore, in the first half, the economy was negative in recession. We’ll see about Q3 after good jobs report. We are still facing a significant inflation problem, despite the decline in market price indices.
The Fed has to do more work to drain its balance sheet and raise the target rate for Fed funds above the inflation rate. I don’t know where that will land, but 2.5% is still pretty low. My guess is that core core inflation is probably around 5 to 6%, but let’s encourage that more Americans are working.
By the way, if we had decent supply-side economic policies with low tax rates and deregulation, we would have nothing to fear 5 to 6% wage increases, but we have an over-regulated economy and there are a lot of threats and more to come.
Think of the right policy as tax cuts and a royal dollar. The first generates incentives for growth, and the second reduces prices. This is the optimal policy mix. Part two of the good news: Capital investment has been cut from Mansion Schumer’s brutality.
With the permission of Senator Kirsten Senema, perhaps the worst part of this stupid bill has been removed. Taxable profits will replace the companies’ minimum book profits, at least as far as 100% spending on plant equipment and technology is concerned.
There’s no legislative text yet, so we don’t know everything we’ll need to know about this deal, but the kill shot has been removed for investing in the business, as far as I can tell. So, hats off to Senator Cinema. I’m sure she watches our show every night, and takes notes constantly, because it removes the most economically damaging part of that foolish bill.
Also, the carry-over interest provision, which taxes private equity funds based on capital gains with a three-year holding period, has also been eliminated. Of course, that still leaves the rat condition in the IRS DC swamp to attack small businesses and conservative groups. Drug price controls also remain, which by the way the CBO is scoring goals as a price hike, not a cost cut, and of course the war against fossil fuels – we’ll call it $430 billion – giving the EPA a new power to regulate greenhouse gases and god knows what else.
Then we have social spending that includes the new Obamacare benefits. That would cost about $250 billion, plus the $430 billion fossil fuel war, plus the $285 billion CHIPS+ bill.
So, if you add it up, you’ll approach a trillion dollars in spending. It will not be paid for. That could drive up inflation, and there are assorted tax-raising cats and dogs left in this little piece of left-wing, awakened utopia we don’t really know much about.
Like I say, it’s a dumb, idiotic bill. America does not need it. Only the far left wants it. It will not help the economy. It will not reduce inflation. It will create a lot of deficits and debts, and if you haven’t already guessed, this is not my cup of tea.
At least there is no investment tax on small businesses. At the very least, there is no forfeiture wealth tax, and at least capital expenditures will remain tax-deductible. So, in the final moments of the left wing awakening of progressive governance in Washington, I think I can say it could have been worse. I know the coffee shop owners wanted it a lot worse, but, you people, this is a pathetic bill and it’s a pathetic agenda and it’s a pathetic Democratic Party.
Nothing to beat inflation. nothing to grow Economie. Nothing to close the border. Nothing to solve the crime wave. Their agenda is nothing. Pathetic, but I also know the cavalry is coming and it would be great if we could save America and kill the rest of that bill.
This article is adapted from Larry Kudlow’s opening comment to the August 5, 2022 edition of Kudlow.