Larry Kudlow: This is the worst imaginable economic policy at a time of great crisis

So, we begin tonight with a familiar phrase: Save America, kill the bill. 

Back-to-back inflation numbers, 9.1% CPI, 11.3% PPI — you do not want to spend another trillion dollars that would steepen an inflation rate that is already out of control. 

Anybody that votes for more social or climate spending should seriously have their head examined and remember history shows that high inflation always leads to recession. 

This time will be no different. I believe we're on the front end of a recession right now. So, anybody who votes for a trillion-tax hike should have their head examined. It will only deepen the inevitable recession and that brings me to an issue that cropped up last night on the show where Senator Joe Manchin had been quoted as suggesting that the proposed tax increase on LLC and subchapter-S pass-throughs would be nothing more than closing a FICA loophole. 

Congressman Kevin Brady strongly suggested that was not the case and that Mr. Manchin was referring to the net investment tax, which was no loophole, but instead would've increased the small business tax rate by 3.8% — a devastating blow to the most important sector of the economy. 

INFLATION SURGES 9.1% IN JUNE, ACCELERATING MORE THAN EXPECTED TO NEW 40-YEAR HIGH 

So, I did some research. Mr. Brady is completely right, and Mr. Manchin is completely wrong. When the net investment income tax was created as part of ObamaCare, it was meant to apply to investment income only. The business income of small individually and family-owned firms was specifically exempted. The exemption was intentional. 

Moreover, the net investment tax does not fund Medicare. It was originally adopted as part of a reconciliation bill and therefore attributing the funds of this tax to the Medicare hospital insurance trust fund would've amounted to a double-counting of the same revenues—that is, counted once as deficit reduction, and then a second time as a means of hospital insurance spending. 

You can't do that. It's a gimmick. It violates the Byrd rule. So, Mr. Manchin and Mr. Schumer are confusing and conflating in order to somehow sell this net investment tax as simply a way of funding Medicare, but it's not true. 

A general revenue is a general revenue. It could be used for food stamps, welfare, housing subsidies, or any other form of discretionary spending.  As I say, this is just phony baloney in order to sell bad policy. Expanding the 3.8% NIIT is an 11% increase in the tax rate proposed on family-owned businesses. But there's more because the Manchin-Schumer proposal would also limit the ability of small businesses to fully deduct their loses during an economic downtown by extending the so-called "excess business lost limitation" for non-corporate taxpayers. 

Now, there's another very dumb idea. C-corps, by the way, are permitted to deduct losses. Why shouldn't S-corps? And, in a note to House and Senate leaders, a couple of hundred business groups have pointed out that the combination of expanding the 3.8% net investment tax and imposing strict limits on small business loss deductions would increase the small business tax burden by more than $400 billion over 10 years. This would be a bone-crushing tax hike. 

NFIB small business confidence has already been plunging. The small business sector has lost employment in 3 out of the last 4 months. This, by the way, is illustrated by declines in household employment, from which the national unemployment rate is derived. 

Big company payrolls have been rising, but small business jobs have been falling. If you know that, and you know that the Fed's going to have to crunch down on double-digit inflation, then why would you slam a huge tax hike on the small business sector? 

SEARING-HOT INFLATION DATA OPENS DOOR TO 100-BASIS POINT FED RATE HIKE IN JULY

There are lots of other bad tax hikes in this proposed reconciliation package, including a 15% minimum corporate tax on book profits, which would wipe out immediate expensing and other legal credits and reductions that are used for IRS profits. 

All this is the worst imaginable economic policy at a time of great crisis. If Congress had any brains at all, they would be cutting taxes, deregulating industry and energy across the board and freezing domestic spending. 

That pro-growth supply-side approach might mitigate the economic cost of the Fed's inflation fight, but the left wing of the Democratic Party won't give in. The Bidens' woke, progressive, modern monetary theory that took apart a perfectly good economy in only 18 months is at it again. They won't listen to advice. 

CLICK HERE TO GET THE FOX NEWS APP 

They're in denial about the situation. They ignore the numbers, and they've managed to not only take down the economy, but to alienate virtually the entire country. 

In the words of Oliver Cromwell to the British Parliament in 1653, "in the name of God, go!" So, permit me an update: Save America, kill the bill. 

This article is adapted from Larry Kudlow's opening commentary on the July 14, 2022, edition of "Kudlow."