Larry Kudlow
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With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming. Cutbacks of out-of-control government spending, pensions and health benefits. Major cutbacks. We know that.

We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed. Unions just loot the benefit lockbox at taxpayer expense. That was the message of Gov. Scott Walker's victorious crusade in Wisconsin. If any good comes out of the Detroit debacle, it will be the spread of that message across the country.

But there's another important point here. If Detroit is to truly recover, a growth program of tax-free investment incentives must be part of the process. Specifically, Detroit should be made a tax-free enterprise zone, along lines proposed years ago by the late Jack Kemp.

The capital-gains tax should be suspended for new ventures. Investment spending and profitability should be made tax-free. Some kind of income-tax break should be put into place for the new employees of new companies. And property taxes should be waved.

Chris Edwards of the Cato Institute tells me that Michigan suffers from a huge business-property tax that's levied on machinery and equipment. He also points out that Detroit has the country's highest property taxes on homes, the top commercial property tax and the second-highest industrial property taxes. Get rid of all that. And then let's hope Gov. Rick Snyder keeps lowering Michigan's corporate tax rate.

But the point is this: A Kemp-like enterprise solution would be vital to Detroit's comeback. Especially a capital-gains tax cut, along with other direct-investment tax cuts. It can be done.

Not forever. Perhaps for three to five years. Something like that. But states and cities compete with each other on a tax basis. And you can bet the ranch that a tax-free Detroit will see investors pouring in, making for a rapid economic recovery.

Land and labor are pretty cheap right now in Detroit. Combine those low costs with a low-tax regime, and the city could snatch victory from the jaws of defeat.

The biggest additional problem is the crime wave. The Detroit homicide rate is high. According to National Review Online's Jim Geraghty, the city has been named among America's most dangerous for years. Detroiters wait an average of 58 minutes for police to respond, compared to a national average of 11 minutes.

Years ago, when crime was a huge issue in New York City, Rudy Giuliani instituted new policing methods to make the city safe again. He accomplished that, and he lowered taxes too. Gotham had a huge comeback.

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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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