Tim Pawlenty delivered a major policy speech yesterday on the economy, and both the Wall Street Journal and Larry Kudlow declared themselves impressed. Pawlenty’s theme is guaranteed to resonate among the base and with libertarian-minded independents: “Markets work, and Barack Obama’s central planning doesn’t.” Speaking at the University of Chicago, where Pawlenty noted that some of the best minds in free-market economics work, Pawlenty called for government policies that get out of the way of markets and supply, and allow the American economic engine of growth and wealth creation work:

The United States is still home to the most dynamic and entrepreneurial people in the world. They’re all around us. Ready to innovate — invest — compete — and create new businesses and jobs. That will mean opportunities for everyone.

They’ve been discouraged and weighed down. By President Obama’s big government. And heavy handed regulations. They deserve a better deal. I’ll give them one. And here it is. Let’s start with a big — positive goal. Let’s grow the economy by 5%, — instead of the anemic 2% currently envisioned. …

In short — we create more economic growth. By creating more economic freedom.

We should start by overhauling the tax code. Its currently an anti-growth — nine thousand page monstrosity. That’s chock full of special deals for special interests. It’s main goal — seems to be to generate campaign contributions. Not jobs.

The speech laid our specific goals, such as a flatter tax system, lower corporate rates, and elimination of capital-gains taxes as a means to spur American investment and production. Pawlenty also demanded caps on government spending and entitlement reform. But he also targeted Obama’s largest legacy — the expansion of government regulation that has driven up costs on business and introduced a cascade of uncertainty for investors. Time to go the other direction, Pawlenty told his audience:

We don’t need ObamaCare to create a one-size-fits-all — government-run health care program. We need Washington to allow a personalized — private health care market to flourish. And meet the diverse needs of individual patients.

We don’t need Dodd-Frank to further intertwine Wall Street and Pennsylvania Avenue. We need to privatize Fannie and Freddie. And remove the threat — that their political slush funds can never again sink our economy.

And we don’t need the unelected officials at EPA — to do what our elected officials in Congress have rejected. We need less EPA monitoring of our economy. And more monitoring of EPA’s affects on our freedom.

I will require sunsetting of all federal regulations. Unless specifically sustained by a vote of Congress. Under my administration — the NRLB will never tell an American company where they can and cannot do business.

This was music to the WSJ’s ears:

Among GOP Presidential contenders, Tim Pawlenty is offering the most ambitious reform agenda so far, and his economic address yesterday continued the trend. While details remain to be filled in, the former Minnesota Governor is rightly focusing on a growth revival that ought to define the 2012 campaign.

Most notable in symbolic political terms, Mr. Pawlenty proposed what he called the “big, positive goal” of growing the U.S. economy by 5% a year over the next decade. His policy mix is centered on building a durable expansion and boosting middle-class incomes, and his speech was notable for its optimism, avoiding the austerity temptation that traps many Republicans. …

Mr. Pawlenty would extricate the economy from this government cul de sac by enhancing the incentives to work, invest and create jobs. He sketched out yesterday a Reagan-like tax reform of lower rates for individuals and businesses. The first $50,000 in individual income ($100,000 for couples) would be taxed at 10% and after that a top marginal rate of 25%. This would give a big lift to the small and medium-sized businesses that file under the individual tax code and create most new jobs. He’d also zero out taxes on capital gains, dividends and estates.

Mr. Pawlenty says that families earning under $50,000 would pay an effective income tax rate of 0%, because he would maintain tax benefits like those for mortgage interest or the child credit that use the tax code as social policy. Mr. Pawlenty is right not to buy into the liberal objection that tax reform must be revenue neutral according to scoring rules that assume no growth dividend, but minimizing tax credit carve-outs would raise revenue by making the tax code more efficient.

The Minnesotan is on firmer ground with his corporate tax overhaul, which would reduce the rate to 15% from the current 35% in return for cleaning out the warren of loopholes and special favors. Businesses will expand, enlarge their payrolls and repatriate overseas earnings. The added benefit is that most corporate welfare is dispensed through the tax code—so a flatter, simpler system will reduce political mediation of the economy and the resulting misallocation of capital. It is both a pro-growth tax policy and government reform.

So did Larry Kudlow, who called the plan a “blockbuster” more than once:

Kudlow set up the interview to allow Pawlenty to take shots at Obama’s assertion that he’s “not worried about a double-dip recession,” and to poke more fun at last year’s “Recovery Summer” PR campaign. Pawlenty is coming out hard against Obama on the issues where he is most vulnerable, the economy, jobs, and federal spending and expansion. Pawlenty comes out squarely against Ben Bernanke and promises that he won’t reappoint the Fed chair to another term if elected President. It’s a good, energetic performance, fed by Kudlow’s enthusiasm for Pawlenty’s “Better Deal” speech.

Here is Pawlenty’s entire speech. It’s well worth the time it takes to watch it all.