Donald Trump

Larry Kudlow, Trump's New Economic Adviser, Is a Longtime Advocate for Low Taxes and Free Trade

Hopefully he will be a positive force from his new perch at the White House.


Jeff Malet Photography/Newscom

On Thursday, economist and CNBC contributor Larry Kudlow was named the new director of the National Economic Council at the White House. Kudlow is a longtime advocate for low taxes, free trade, and looser immigration restrictions. Although he has softened slightly on the last two, I am hopeful he will use his new perch to continue to advocate forcefully for all of these positions.

To many in Washington and New York, Kudlow is known for being one of first supply siders. He was a supply sider when supply side wasn't even a thing, and he has remained loyal to that way of thinking. In other words, he likes his and everyone else's taxes low—especially as they apply to capital.

Needless to say, he was happy with the tax reform plan passed and signed into law last December, especially the reduction of the corporate tax rate from 35 to 21 percent. Kudlow is more politically savvy than I am, so he probably had more tolerance than me for the "middle class tax relief" part of the plan. In my humble opinion, if Congress and the president won't cut spending, they shouldn't implement tax cuts with no apparent economic growth payoff.

When you are engaged in a tax policy battle, having Larry Kudlow on your side is an asset. He was, for example, quick to oppose the misguided Border Adjustment Tax last year, even if it meant going after longtime allies like House Ways and Means Chairman Kevin Brady (R-Texas) and Speaker Paul Ryan (R-Wis.). For months he was relentless in working his contacts here in Washington to stop the measure, as well as educating viewers on CNBC.

His input on taxes will be welcome in the White House, since there is still a lot that can be done to make improvements to the recently passed tax plan. Making permanent some of the provisions which are currently set to expire should be one important priority. Hopefully, Kudlow will also remind the president and members of Congress to cut spending to pay for tax reform this time around.

I assume he will also use this influence to address one of his longtime pet peeves: indexing the basis of capital gains to inflation. As he said on CNBC last summer:

Consider this: You invest $1,000 and, after ten years, you sell that investment for $1,200. But if inflation averaged 2.5 percent in that period, the $1,200 you receive will be worth less in real terms than the $1,000 you invested. And yet, under current law, you will pay a tax on your $200 capital gain.

The results of this policy can be perverse. "As has been well documented," writes Alan Auerbach, University of California economist, "realized capital gains may be subject to tax rates that easily exceed 100 percent of real gains in the presence of inflation."

If he decides to use his influence to push for that change, he will get lots of support from the free-market tax movement.

There are many good things to say about Larry Kudlow. But as it relates to this job, the best news of all might be that he is no Peter Navarro—the anti-trade Trump advisor.

Unlike Navarro, who has said that he believes it's his job to confirm Trump's worst anti-trade instincts, Kudlow has been a consistent advocate for free trade. When he worked at the White House under president Reagan he used to call free traders like him The White Hats. As such he didn't hesitate to express publically his opposition to the president's recent decision to impose punishing tariffs on steel and aluminum.

If there's a reason to worry, it's Kudlow's recent endorsement of targeted tariffs for China—a country he sees as a gigantic problem for the U.S. Kudlow recently said that he is "not opposed to targeted tariffs" against the country, which he called a "Trumpian way of negotiating."

One can recognize the tremendous challenges posed by China and still reject a policy solution that Kudlow himself rightly identifies as being equivalent to a tax hike that hurts consumers more than it helps the protected industry. And even though he now argues that the tariff are simply a shrewd negotiation tactic against China, I still question the soundness of it all as the people hurt the most from the strategy are American consumers.

A bad a policy is still a bad policy, even when directed against those you consider to be bad players on trade. Besides, China has repeatedly demonstrated that tariffs won't change the behavior in question. So you might as well go straight to what may actually work, even if imperfectly: joining forces with other countries to get China to agree to better practices, enrolling in the World Trade Organization, and negotiating international and mutually binding agreements.

Kudlow has also evolved on immigration over the years from being pro-immigration to being friendlier to restrictionist policies. I certainly wish he would change his position on that, and start seeing the president's anti-immigration stance as akin to a tariff on foreign labor that will ultimately hurt American consumers (of labor).

He may argue that less foreign labor is what we want, to which I would respond that—as is the case with tariffs—restricting immigration does not guarantee an increase in the demand for domestic labor. It does guarantee an increase in the cost of labor, which will hurt the small business owners who have prospered thanks to their low-cost foreign employees.

That said, his moderate skepticism toward trade and immigration could actually be an asset in this White House. As Avik Roy recently told me, "I think where he is philosophically is also perfect for this White House. He's a supply-side Reaganite in general, but has a pragmatic streak on trade and immigration in ways that allow him to inject good policy ideas into the Trump administration."

Like most supply siders, Kudlow doesn't spend much time talking about the huge entitlement crisis this country faces. However, from my interactions with him over the years, I got the impression that he agrees we have a problem that won't solve itself without reform. He just has more faith than I that economic growth can do most of the work for us. This is his chance to steer us in a solidly pro-growth direction and prove me wrong.

Finally, I would be remiss if I didn't note that Larry Kudlow is one of the kindest human beings in this cutthroat business we are in. I have witnessed his generosity toward others, and I have experienced it too—as have many others.

I wish him luck in this new job. He will need it.

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  1. “”Hopefully he will be a positive force from his new perch at the White House.”‘

    And he may, for a month or two.

    1. Yeah, you put a good kid and a bad kid together in the hopes that the good kid will be a positive influence on the bad one but you have to beware the opposite effect. Just the fact that Kudlow took the job indicates that he has an unreasonable faith in his persuasive abilities (or Trump’s openness to being persuaded) or he’s willing to sell his principles for the right price. About the best outcome you can hope for is that Kudlow doesn’t last a month.

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  2. Oh yay. Welcome to the 12 Step Caliphate. The first step is to admit you’re completely insane. Now, choose a god of your understanding, you’re doing great…..

  3. I am hopeful he will use his new perch to continue to advocate forcefully for all of them.

    Right up until the moment he is fired, sometime before June.

    1. As usual, Trump was right when he said there’s no chaos in the White House. They have this staff rotation process nailed down.

  4. Babbling table TV personalities have taken over my country.

  5. Highly unlikely he’s going to last. He’s a TV personality and will be on TV all the time getting lots of attention. There’s nothing Trump hates more than one of his underlings getting more attention than he does.

  6. Next up:
    Lou Dobbs for Secretary of Commerce!
    Judge Jeaninne Pirro for Attorney General!
    Rush Limbaugh for Department of Health & Human Services! (He has vast knowledge of drugs after all.)
    Sean Hannity for Communications Director!
    Bill O’Reilly for Department of Veterans Affairs!

    1. Ivanka Trump for Special Advisor to the President!

      1. You mean “Stormy Daniels”

        1. I don’t think the president can tell them apart.

        2. Ivanka Trump for Special Advisor to Stormy Daniels??

    2. Let’s not joke about Sean Hannity.

  7. The dissonance…is…cognitive!

  8. I’m sure Larry is just another Russian spy, right?

  9. In my humble opinion, if Congress and the president won’t cut spending, they shouldn’t implement tax cuts with no apparent economic growth payoff.

    There you have it. Veronique de Rugy is for higher taxes since we all know cutting spending isn’t on the table. Or…wait…are we under the impression cutting spending is possible? Interesting…

    Hopefully, Kudlow will also remind the president and members of Congress to cut spending to pay for tax reform this time around.

    So Kudlow can convince Democrats to vote for lower spending (including the President)? I’d love to hear more. Does he know where the bodies are buried, or is this just a case of wishful thinking leading to higher taxes because utilitarianism and because deficit (which, by the way, when was the last time we had a ‘balanced budget’? Clinton? Ha.)

    1. Your libertarianism is not pure. In the world of libertaria, there are no trade offs, only the utopia.

  10. Unfortunately neither Kudlow nor Veronique understand the US Individual Income tax. But that is how the libertarian/conservative establishment rolls.
    The Individual income tax is an excise tax. As such it is self regulating. The tax is an excise on the exploitation of a federal privilege (IE a federal delegated power) for profit. Neither of these two understand that, and believe it is a new kind of tax, ie an unapportioned direct tax, imposed on “everything that comes in”.
    If you are not a federal worker, or otherwise profiting from a federal privilege, your participation in the income tax is voluntary. That goes for payroll taxes as well.
    However, filing a return is not voluntary if third parties mistakenly file information returns alleging you earned taxable income. Then you must file a return to recoup your withholdings, or clarify your status.
    Since the income tax is voluntary for most people, the government must ask you for the money. That’s why they call it “contributions”. As Hamilton wrote in the Federalist papers, excise taxes are like a river. By not participating in the excise taxable activity, you damn the river at the source.
    The constitution is self regulating. Veronique assumes the state has the power. Actually the people do. By withholding your support, you force the state to downsize. STARVE THE BEAST.

    1. Go ahead and tell the IRS income taxes are ‘voluntary’ and see how fast you end up in jail.

    2. Wesley Snipes, is that you? You were awesome in Blade, man.

      1. Voluntary. You keep using that word. I do not think it means what you think it means.

    3. Is it Wanderlust Fest time already?

  11. Maybe, over a beer or something, he can get Trump to forget those tariffs…

    1. Kudlow has already expressed support for so-called targeted tariffs for “national security.” What sins will that not rationalize?

  12. He’s a good guy, that’s why I have pity for him. Everyone who tries to work with that guy ends up fired, insulted, embarrassed, and/or indicted.

  13. “…does not guarantee an increase in the demand for domestic labor. It does guarantee an increase in the cost of labor…”

    Demand may not increase but cost will go up? That means demand DOES increase! That is literally the definition of supply and demand. Be better.

  14. Kudlow sold his soul. Trump is Pinochet without the means to impose his entirely authoritarian will.

  15. ***In my humble opinion, if Congress and the president won’t cut spending, they shouldn’t implement tax cuts with no apparent economic growth payoff.***

    In most cases, I agree with Ms. de Rugy. Unfortunately, I couldn’t disagree with her more over the quote above. If we wait until Congress and POTUS cut spending, no tax cuts will ever happen — ever! I would rather keep the money I earned, thank you very much.

  16. The idea that Trump is just using the tariffs as a future bargaining chip, assumes that other countries are not aware that this is what he is doing. And so, we can expect other countries to impose their own new tariffs on US goods for the purpose of having their own bargaining chips. So, in the end everyone gets rid of their new tariffs, and so we go back to where we were, but in the mean time everyone loses. Steven Hankin

  17. TV pundits say Kudlow is not qualified – because he’s on TV.

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