Congressional Democrats could enhance this healing process if they would quit threatening to raise taxes on buyout firms and hedge funds whose ears are being pinned back by the bond market. This is no time to raise capital costs by repealing Bush's tax cuts or by raising new taxes. Case in point: Former Sen. John Edwards's bad idea to raise the capital gains tax rate to 28 percent from 15 percent, and to drive up the top personal tax rate to at least 40 percent from its current 35 percent.

Treasury man Paulson was right when he told me in a recent CNBC "Kudlow & Company" interview that if you tax something more, you get less of it. That's why he opposes the hedge and buyout fund tax hike. Millions of pensioners, including firefighters, police and teachers, will suffer lower retirement returns if Democrats have their way. Taxing capital more will throw a wet blanket over American families' income and spending power by weakening the jobs picture, which remains one of the brightest spots in our economy.

Paulson has a better idea. He recognizes that our corporate tax system is broken. Business tax reduction is occurring all over the globe. Hence, the United States is becoming less competitive in the global race for capital. Paulson believes the best solution to this is full-fledged, pro-growth corporate tax reform.

His Treasury staff is apparently preparing a plan to reduce the current 35 percent federal tax on business down to 27 percent. It's a very good idea. Paulson also favors Loews CEO James Tisch's idea to reduce the corporate capital gains tax rate. Measures like this would improve business profitability, make the United States more hospitable to global investment, spur new businesses and job creation, and enhance the creditworthiness of all that loan paper gathering dust on bankers' shelves.

The loan credit freeze-up currently plaguing corporate stock and bond markets would improve rapidly if Washington would befriend the markets, instead of waging war against them.