SO I SAY, WELCOME TO THE BOOMTOWN

The Pricing-In Is Right: The Bush tax-cuts have set the stock market on fire (Larry Kudlow, June 6, 2003, National Review)

The current stock market rally represents an impressive showing of the immediate impact of pro-growth tax cuts--the same cuts
that Democratic critics argued would provide no short-run benefits. All of the major indexes are up more than 20 percent since they began pricing-in the tax cut, and they are already recapitalizing American business.

Few people understand that the 11,000-odd publicly owned U.S. companies desperately needed a rising stock market to rebuild their credit quality and funding capabilities in order to expand operations, invest, produce more, and hire new workers. In the last three years, capital and wealth were destroyed in the stock market, a development that caused a credit crunch, corporate contraction, and a rise in unemployment. But the new tax cuts on personal incomes, investor dividends, capital gains, and business equipment expensing--along with a steady increase in the money supply and a waning of uncertainty--are combining to give investors plenty of reasons to buy shares and replenish business capital.

Yes, there are millions of small companies that are privately held, and therefore might seem to be outside this recapitalizing and refunding process. But the credit improvement that the big fish enjoy will work down to the smaller fish. When attitudes toward big business improve, everyone in the lending community is in a better frame of mind. The lending will be there for the smaller firms, and also for the highest-risk start-up ventures that were shut down in recent years.

Under the old law, $100 of corporate profit paid out as a dividend to successful earners netted only $40 of new investable capital, after tax. Today, under the new law, the next $100 of profit will generate an extra $55 of private-investment capital, after tax. The reduced government tax bite on investment income (including capital gains) leaves more new cash to be plowed back into the economy to produce new technology and equipment, new factories and office buildings, and new jobs at higher salaries.

In no uncertain terms, this stock market surge signals the beginning of true economic recovery. And the good news is only beginning to pile up.

From his lips to Adam Smith's ears. Posted by Orrin Judd at June 7, 2003 12:21 PM