What Republicans Want Now

The New Hampshire primary may not have confirmed who's going to win the GOP nomination — or the Democratic nomination for that matter. But it just may have told us where voting Republicans stand on the economy and supply-side policy.

Exit polls in New Hampshire reveal that the most important issue for Republican voters is the economy at 31%, trailed by the war in Iraq at 24%, illegal immigration at 23%, and terrorism at 18%.

Overall, 54 % of New Hampshire voters said that reducing the budget deficit is the highest priority for the next president, while 44% believe in cutting taxes. And it's from here that an interesting split develops between Senator McCain and Governor Romney. While Mr. McCain leads Mr. Romney 41% to 21% on the economy, Mr. McCain is the voters' deficit-cutter of choice while Mr. Romney is the voters' tax-cutter of choice.

Of the deficit cutters, Mr. McCain boasted a 20% lead over Mr. Romney, 46% to 26%. Of the tax cutters, Mr. Romney led Mr. McCain by 10 points, 37% to 27%.

Mr. McCain, of course, voted against the Bush tax cuts in 2001 and 2003, while Mr. Romney didn't support them as governor of Massachusetts. Noteworthy, however, is the fact that Mr. McCain favored the Reagan tax cuts in the 1980s, while Mr. Romney indicated a lack of support for the Reagan program during his unsuccessful 1994 Senate run against Ted Kennedy.

So Mr. McCain should be leading on the tax issue. But hard-line tax-cutting strategists like Cesar Conda and Vin Weber have been working to position Mr. Romney as a supply-side tax-cutter. According to the New Hampshire results, this is paying off. But the key development is that supply-side policy is finally getting its due on the GOP campaign trail.

Mr. McCain's message of cutting federal spending and eliminating budget earmarks is hitting home. More and more voters seem to be worried about excess government spending, and Mr. McCain remains the favorite on this issue. But Mr. McCain is now talking more like a spending and tax cutter, drawing the endorsement of time-tested supply-sider Jack Kemp and long-term deficit-spending foe Phil Gramm, the former Texas senator. Critically, Mr. McCain has pledged to make the Bush tax cuts permanent.

The Bushies, incidentally, are preparing a very weak-kneed temporary-tax-rebate plan that doesn't feature any big-bang supply-side cuts, such as a significantly lower corporate tax rate. I can't figure out why President Bush — who declared himself a supply-sider last year — is proposing a demand-side Democrat-type plan that simply mails checks without any tax-rate-changing incentive impact.

Meanwhile, Senator McCain is saying: "I told you so." If the Bush tax cuts had been accompanied by stronger spending restraint, there would be plenty of budget room for large-scale across-the-board tax-rate cuts today.

Nevertheless, the McCain campaign is looking carefully at a possible corporate tax-cut proposal, as well as an elimination of the dividend tax as a means of ending the double tax on corporate profits. They're also expected to unveil some new economic proposals in Michigan that would include a strong free-trade component. As one McCain insider told me, "John is the strongest free trader in the country today, but never seems to get much credit for it."

The Romney campaign is also expected to roll out a tax-cut plan in Michigan. (Michigan, of course, is an overtaxed, overspent, over-unionized liberal paradise. It boasts a first-in-the-nation unemployment rate of 7.4%.) Rudy Giuliani, meanwhile, has unveiled a gonzo big-bang tax-cut plan that would get rid of the death tax and reduce capital-gains and dividend taxes to 10% (while indexing both to inflation). The former New York City mayor also would drop the corporate tax rate to 25% from 30% and expand tax-free savings accounts. In addition, Mr. Giuliani will investigate an optional income-tax plan with only three rates of 10%, 15%, and 30%.

Even the pandering and populist Mike Huckabee deserves credit for sticking to his flawed, but still prominent, FairTax proposal. Aggressive tax-cutting strategies are now center stage in this hot primary season.

The only downside here is that these proposals are more than a year from seeing the legislative light of day, if they see that light at all. The Goldilocks economy of today, while consistently resilient, needs a tax-cut lift from Washington. It's too bad the White House is not reaching out to House Ways and Means chair Charlie Rangel to slash the corporate tax rate. This could be paid for in static terms by abolishing corporate-tax loopholes, subsidies, and various K-Street tax earmarks.

It's a missed opportunity. The economy is clearly top of mind for the Republican base. And now, at long last, supply-side policy prescriptions are top of mind for the GOP candidates.

If only the White House would get on board.

Mr. Kudlow is host of CNBC's "Kudlow & Company."