Larry Kudlow

The latest Gallup poll pegs President Obama’s approval at a new low of 41 percent. That adds to the thought that the winner of the GOP presidential-primary sweepstakes is going to be the next president.

And inside that Republican contest, the policy pendulum is swinging toward pro-growth, flat-tax reform. A new agenda. With Herman Cain’s 9-9-9 plan and the announcement of a Steve Forbes-type flat tax from Gov. Rick Perry, the GOP flat-tax-reform competition is dominating the headline news.

While President Obama stumps for huge tax hikes -- on incomes of $200,000 to the millionaire and billionaire level -- and demoralizes businesses and entrepreneurs with his populist attacks on success and risk-taking, the GOP is fast coming up with a much better idea.

The handwriting is now on the wall. A huge part of the 2012 campaign will be pro-growth tax reform versus “fairness,” redistribution, and soak-the-rich. In a stalled-out economy, I’ll take the supply-side bet anytime. Pro-growth, flat-tax reform is going to win.

The stock market gets this. The flat tax is bullish. In late September, Herman Cain trumpeted his 9-9-9 flat-tax/fair-tax hybrid reform plan at the Orlando, Fla., debate. Since early October, stocks have come out of their funk, rising 12 percent.

Coincidence?

Part of the stock rally is based on strong corporate earnings, the mother’s milk of stocks. So far for the third quarter, almost three-quarters of reporting companies have beaten estimates, with overall profits coming in about 14 percent ahead of year-ago. And investors are hopeful that Europe will solve its sovereign-debt and banking woes.

But the sudden stock rally could also be discounting a new GOP growth plan that will replace the dreary Obama tax-the-rich mantra.

Investors read the political polls as well as the earnings results. And investors sense that a rejuvenated Republican party -- with candidates competing for the most pro-growth, incentive-oriented tax reform -- bodes well for America’s economic future. So with the election a little more than a year away, stocks may be thinking about a new Reagan-like era in economic policy.

An era when success is rewarded, not punished. An era when consumption is taxed more while saving and investment are taxed less. An era when capital formation rises from the ashes to produce a new surge in productivity, jobs, and real incomes. An era when simplicity trumps $450 billion in compliance costs; when a new Republican party means business when it says it will drive a stake through a tax code that has been a ball-and-chain to the economy.


Larry Kudlow

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