Trump Economic Adviser Larry Kudlow: The Fed Is Part of The 'Swamp'; Now Is The Time To Pass Tax Reform

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Larry Kudlow, the conservative economist who helped write the tax reform plan for President Donald Trump, rallied an audience of elite technology service provider CEOs to get behind a bipartisan tax reform effort even as he referred to the Federal Reserve as part of the "swamp."

"As JFK said, 'A rising tide lifts all boats,'" said Kudlow, referring to how President John F. Kennedy pioneered supply side economics. "It has worked; it will work again. If we let it work. As far as the Federal Reserve is concerned, quit telling me growth causes inflation. I don't want to hear it. That is why I want a new Fed chairperson. I want to clean house. The Fed is part of the 'swamp,' and I come from the Fed."

Some economists have speculated that tax reform could lead the Fed to tighten monetary policy in a bid to stave off inflation.

[Related: Best of Breed 2017 Conference Coverage]

Should the tax cuts be approved, a Deutsche Bank analysis, for example, sees the Fed rolling out at least one or two more interest rate hikes than planned through 2019.

"We have to learn in the economics profession, the government and the 'swamp,' to coin a phrase, that more people working and producing and getting higher wages does not cause inflation," said Kudlow, who started his career as a staff economist at the Federal Reserve.

"People have been looking for inflation in the top right drawer, the top left drawer, underneath the desk, in the trash bucket and cannot find inflation, even the Federal Reserve," he said. "Mrs. Yellen gave a talk the other day and said the Fed's inflation models haven't worked for 20 years. …The only disagreement I have is the models haven't worked for 40 years."

CRN reached out to the Federal Reserve on Kudlow's remarks that Dr. Janet Yellen – whose four-year term ends on Feb. 3, 2018 – should be replaced as Federal Reserve Chairperson. The Fed had no comment.

Kudlow made the comments during a keynote address before 300 of the top technology service providers in the country at the 2017 Best of Breed (BoB) conference at Loews Hotel in Atlanta.

Trump's tax reform plan is on target and would spur a new era of economic prosperity, said Kudlow, a CNBC contributor and National Review Economics Editor. He said even those who disagree with Trump need to get behind the "common damm sense" economics that tax cuts will drive prosperity for all Americans.

"No inflation, big growth -- can you quarrel with that?" asked Kudlow, who has co-authored a book titled "JFK And The Reagan Revolution: A Secret History Of American Prosperity."

"You may hate Donald Trump's guts. I am not arguing that. I am just arguing a theory. I don't know why the Democrats can't do this. I was a Democrat. [Former President Ronald] Reagan was a Democrat. Kennedy's Democratic tax-cutting legacy has been written out of the party. It is a pity. We need both parties working together in bipartisanship."

The Trump tax plan would reduce the corporate tax rate from 25 percent to 20 percent and limit the tax rate on smaller pass-through businesses such as S corporations and limited liability companies (LLCs) to 25 percent – down from the current individual tax bracket rate of 39.6 percent.

The majority of strategic service providers are privately held, with the majority structured as S corporations, C corporations and LLCs.

Directly addressing a technology solution provider owner of an S corporation, Kudlow said the Trump tax reform plan would cut taxes for both C corporations and S corporations, which account for some 25 million independent businesses. "That is a huge chunk of the economy," said Kudlow. "The deal was 15 percent for the C corp, which has now kind of drifted up to 20 [percent]. Trump has drawn a red line on that, and I hope he stays with it. He's been very good at that. Regarding the small companies, because you are only taxed once, your rate won't go as low but in the House Plan – The Trump Plan -- it will be 25 percent. That is pretty good. You are paying 40 percent now."

Kudlow said the tax cut is critical to driving investment in businesses, which in turn will drive up wages for working people. "You want a good business, you need investment," he said. "If you punish investment, then the bet is off. It is not about fairness. It is not about rich people. I like rich people. The trick is to make the non-rich rich, open the door. That is the trick. That is pure Kudlow. So let's do it. I am going to be a little political here. That is what the president is trying to do. He may not do it to your liking. He may say things nobody likes. Do it, it will work. Why? Because it has worked in the past."

Kudlow said he advises Trump on economic policy but is not a close friend of the president. "I am not an intimate of his, though I know him pretty well," said Kudlow. "I don't mess with that side of it. I leave that to [President Trump's daughter] Ivanka [Trump] and [her husband, Trump Senior Adviser] Jared [Kushner]. I just say, 'Here is good policy economics and here is bad policy. You are right on target with your tax cuts, sir. You are right on target with your rollback on regulations. I am very worried about you on trade. Tariffs are taxes. They hurt consumers. But on the 15 percent corporate tax, immediate repatriation, 100 percent write-offs, on expensing new investment, I am all there. Hell, I wrote it. Get it done. Just get it done.'"

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