Larry Kudlow

The Iowa Democrats did the entire party a favor by nominating Sens. Kerry and Edwards -- rather than the nutty Howard Dean -- in their caucus votes Monday. But the results need a reality check.

With their Us vs. Them vision of the economy and culture, Kerry and Edwards are clear enemies of the investor class. Though they themselves are millionaires, they are running against successful earners, entrepreneurs and investors -- people who worked their way into higher tax brackets and benefited greatly from President Bush's 2003 tax-cut plan. Namely, Kerry and Edwards would cancel the tax cuts on investor dividends and capital gains, repeal the drop in high-end income-tax rates and overturn the planned elimination of the inheritance tax.

This is why the stock market opened the day after Iowa on a less-than-gleeful note, despite booming earnings reports left and right. The market knows what the new Democratic frontrunners seem not to know: Bush's tax cuts on investment have resurrected the stock market and reignited the economy. Instead of punishing investment, Bush's plan rewarded it. By taxing capital less, indeed roughly 40 percent less, we are getting more capital investment.

If elected, however, Edwards would raise the tax rate on capital gains to 25 percent from 15 percent. Both candidates would eliminate the 15 percent tax rate on dividends and roll it back to the new higher top tax rate, which would be somewhere between 40 percent and 45 percent.

Apparently neither man understands the incentive model of economic growth, which is the backbone of supply-side economics. Their class-warfare approach to the economy seems to assume that by hurting the rich, they will somehow help the non-rich. This is the classic fallacy of the so-called populist approach of liberal Democrats in recent years. It is completely at odds with President John F. Kennedy's vision of rewarding everyone in society with lower tax rates, which are designed to produce a larger economic pie.

A winning tax program is never about those who are already rich. They can shelter and hide their money from the IRS 10 different ways. But a truly growth-oriented approach to tax policy provides fresh rewards for those attempting to climb the ladder of success. However, barricading the doorway to opportunity is no way to make the non-rich rich.

Larry Kudlow

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