Larry Kudlow

Did the big March jobs report put President Obama back on the road to reelection? If so, he can thank the GOP, whose tax cuts saved him from himself.

You could hear cheering all the way from the West Wing when the Labor Department showed a 216,000 gain in nonfarm payrolls, the biggest number in quite some time. Plus, the unemployment rate continued its decline to 8.8 percent. Not so long ago it was nearly 10 percent.

Corporate payrolls have now increased by 478,000 for the first three months of the year. Over the past three months, the average payroll gain has been 159,000, which is more than twice the monthly gain in 2010. If payrolls stay on track, that would mean nearly 2 million jobs created in 2011.

So sure, the White House must be very happy. In fact, everybody should be happy at an improving jobs picture.

But here’s the sublime irony. The wake-up in job creation is a function of Republican policy. After all, for two years the Obama Democrats spent themselves into oblivion, with over $1 trillion of so-called big-government stimulus. Didn’t work. By the end of last year, that failed stimulus wore off, and it was replaced by Republican tax cuts.

Remember that in mid-December, after his election shellacking, President Obama signed a deal that extended the Bush tax rates across the board. The top marginal rate stayed at 35 percent. Investment tax rates for cap-gains and dividends held at 15 percent. Most business people I know -- folks who work in both large and small companies -- welcomed the tax-rate freeze as a sign that maybe the war against growth, capital formation, and small business was either coming to an end or at least a two-year truce.

So, presto, the jobs numbers start jumping in the new low-tax year.

The most important tell-tale sign for jobs is the household employment survey, which includes most of the nation’s small businesses. It’s the survey that signals real turning points in job creation since it’s the small-business owner-operators who are most sensitive to changing marginal tax rates.

And clearly, tax incentives matter: For March, the household survey jumped 291,000. Year-to-date, household employment is up 658,000, and is on track for a 2.6 million gain for the year. This small-business jobs push is also what’s driving down the unemployment rate. 

So it looks like Republican tax cuts have saved Obama from himself. And the GOP ought to stay on this tax-cutting path as they move toward limiting the budget. Full-throated flat-tax reform to lower marginal rates and broaden the base will create brand new incentives for growth and jobs.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.

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