This would rejuvenate economic growth. In the global race for capital, the U.S. would emerge victorious.
Incentives matter. I'm not just talking about 4 or 5 percent economic growth, but higher wages and stronger employment-participation rates. And my guess is that, as real economic growth gets a jump-start, real interest rates would move higher. And that's when the Fed can follow market interest rates upward by raising its policy rates.
By the way, it's the same problem overseas. Europe and Japan and so many other countries are ignoring tax policies, which are in sore need of growth repair. Japan needs tax cuts across the board: corporate, personal, sales, you name it. Europe has relatively low business tax rates. But it needs to slash taxes on personal income, estates, and retail sales (VAT). Negative interest rates won't do the trick, but new tax incentives to work, save, and invest will.
So, I support Janet Yellen's moratorium on rate hikes. But I wish she would be more outspoken about the need for corporate tax reform. If the U.S. economy starts moving back toward its potential — 4 or 5 percent economic growth over the next bunch of years — the Fed can normalize its interest-rate structure by following higher market interest rates which would respond to faster economic growth.
What we basically have here is a tax problem, not so much a monetary problem.
Commentary by Larry Kudlow, a senior contributor at CNBC and economics editor of the National Review. Follow him on Twitter @Larry_Kudlow.
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