Larry Kudlow
As George W. Bush mounts a strong comeback in the polls, stock market averages are mounting their own stealth recovery. There?s a clear link here. Should the president be reelected, tax-rates on capital will stay low and may even drop some more. Wall Street likes this.

Bush?s concept of tax reform is focused on reducing the multiple taxation of saving and investment. Under current law the same dollar of income is taxed once as work effort, a second time as corporate earnings, a third time as dividends, a fourth time as capital gains, and a fifth time as inheritance. This is a capital killer.

Without capital there is no investment funding for the very businesses -- large, small, old, or new -- that create jobs. Levying tax penalties on capital, as Sen. John Kerry would do if elected, would curtail the supply of the very seed corn necessary to grow the American economy. Capital is labor?s best friend. JFK understood this, but his Democratic party has long since forgotten.

Kerry?s Europeanized domestic plan would set up tax penalties on capital formation, upward mobility, and the formation of job-creating businesses. For the 90 million-strong investor class, Kerry?s taxes on dividends, capital gains, and the most successful earners are a tax on the stock market -- and therefore a tax on economic growth and wealth creation.

On the flip-side, Bush would use personal control, individual responsibility, and tax-free savings accounts to create new wealth for retirement, healthcare, and education. This is his ownership-society vision. It would represent a sea-change in policy. Instead of government-directed solutions, Bush would move the country toward consumer- and investor-based solutions. Government dependency would end.

The stock market is a proxy for the future value of private-sector free-enterprise. So it?s no wonder that share prices are rising along with Bush?s polls. Online pay-to-play trading markets are showing sizable Bush leads. The Iowa Electronic Market has Bush at 57 cents and Kerry at 43 cents. A month ago these contracts were dead even. The market has Bush at an incredible $63 and Kerry at a dismal $35.

The Gallup poll has Bush ahead 52 percent to 45 percent. More revealing, Gallup shows a major Bush move in key battleground states. In Missouri, Bush is up 14 points. In Ohio and Wisconsin, he?s up 9 points. In Pennsylvania, he?s about even.

Larry Kudlow

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