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Bannon goes belly up, and the stock market soars

Lawrence Kudlow on

There were two big money-and-politics stories in the first week of the new year: The Dow Jones industrial average soared 577 points, and former White House chief strategist Steve Bannon ended his political career.

Are these two events related? Perhaps more than you might think.

Bannon's peculiar notions of populism were essentially anti-growth. He believed higher taxes, ultra-protectionism and a cheap dollar would help the middle class. Supply-siders like me know these policies only damage the economy, with the middle and lower classes suffering the most.

Though Bannon was pushed out of the White House months ago, he apparently still had the president's ear. So his influence has continued to worry investors and business. But he went belly up politically last week, and the stock market soared. Some are calling it the "Bannon is gone" rally.

This is an oversimplification. There are many positives driving shares higher, including the Trump tax cuts and the expected rise of business profits, the mother's milk of stocks.

But Bannon was never a strong advocate of the Trump tax-cut plan. Instead, he wanted to raise income taxes for successful earners, from 40 to 44 percent.

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Steve Moore, Art Laffer and I had numerous conversations with Bannon to try to talk him out of this. President Trump, we argued, would end former President Obama's wars on success and business with policies that generate faster economic growth.

How does punishing upper-income people help spur investment or job creation? How does hurting the so-called rich help the middle class? Those are Democratic arguments, and failing ones at that.

A rising tide lifts all boats. Former Presidents John F. Kennedy and Ronald Reagan and Jack Kemp believed it. So does Donald Trump.

Would you rather have 2 percent growth or 4 percent growth? The answer is 4 percent. But raising income tax rates at the top end -- as President Obama did and Bannon wanted to -- gets you back to 2 percent growth.

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