In my July 2 column, I said it was time to start buying stocks again. The bottom in stocks turned out to be that very day, and the S&P 500 now stands about 8% higher.

There are a lot of reasons. Some I expected -- and one comes as a beautiful surprise.

The centerpiece of my buy recommendation was the improvement in the debt situation in Europe. As July has played out, it's only gotten better, with European banking regulators having completed stress tests of 91 European banks, and only seven of them failing.

I've also been saying for several months that once the oil spill in the Gulf of Mexico was brought under control, stocks would rise because a major psychological negative would have been removed. It looks like BP (BP) finally has a lid on the monster, and it seems to me that bleak mood of the last few months has started to brighten.

Here's the good news I never expected. Are you sitting down?

Last week, three Democratic senators publicly advocated extending the 2003 Bush tax cuts scheduled to expire at the end of the year. That's right. Three senators from the political party that since 2003 has bashed those tax cuts as a sop to "the rich" have suddenly decided that it's not a smart idea to let tax rates go up when the economy is as weak as it still is.

These three bright fellows are Evan Bayh (Ind.), Kent Conrad (N.D.) and Ben Nelson (Neb.). All honor to them for having the political courage to do the right thing for the economy, even if it means going against the conventional wisdom of their party.

News of their conversion broke the evning of July 21. The following day, the S&P 500 index gained 2.3%.

Here's the logic behind Bayh, Conrad and Nelson's decision.

First and foremost, they're thinking about jobs -- and with the unemployment rate at 9.5%, everyone in Washington ought to be thinking the same thing. Bayh, Conrad and Nelson understand that the prospect of higher taxes on "the rich" next year is holding back job creation.

Here's why. Take my little company, Trend Macrolytics. It's a small firm, with just two employees -- me and one other guy. Since 1992, companies like mine with fewer than 10 people have been responsible for 117 million new jobs. That's 38 million more jobs than were created by big companies with more than 1,000 people.

What does this have to do with taxing "the rich?" Simple. Little companies like mine don't pay corporate taxes like big companies. They are organized as sole proprietorships, S-corporations, or limited liability corporations (like TrendMacro), so the profits are passed on to the people who own them (me, in the case of TrendMacro), who in turn pay taxes on them as personal income.

Many people who own little businesses like TrendMacro are considered "rich." I'm no Bill Gates or Lloyd Blankfein, but my business income puts me in the top tax bracket. Under the Bush tax policy, that means paying 35%. If those cuts expire at year-end, next year the top rate will rise to 39.6%.

Now, suppose I want to hire a new employee at TrendMacro. I'd only do it if I thought I could make enough money on it to justify the trouble of recruiting, training, supervising -- and taking the risk that it might not work out. So, just for example, let's say I'd have to think I could make an extra $65,000 a year with my new employee.

At the current tax rate of 35%, my new employee would have to generate profits of $100,000 to leave me with $65,000. If that rate climbed to 39.6%, I would keep only $60,400. So to hit my $65,000 target for hiring, I would have to expect my new employee to generate profits of $107,616.

So what do you know? Raise my taxes, and all of a sudden it's not as easy for me to hire someone. The guy or gal who could make me only $100,000 wouldn't get the job. And unless I met someone who could make me $107,616, no one would get the job.

Bayh, Conrad and Nelson probably remember what happened in the job market after 2003, when the Bush tax cuts were first enacted and lowered the top rate from 39.6% to 35%. Until then, America had been in a grinding "jobless recovery." The recession had ended in November 2001, but over the next year and a half more than a million people lost their jobs. That all changed practically the moment the tax cuts were enacted. The jobs losses stopped, and three months later, the gains started to flow in. Over the coming four years, the economy added 8 million jobs.

There's more than jobs at stake here, too. Bayh, Conrad and Nelson probably realize that extending the Bush tax cuts can lift stocks and housing prices. Those cuts reduced the tax rate on capital gains -- the profits you make when you sell your stocks or your home. A lower capital gains tax rate effectively raises the value of stocks and homes because people are willing to pay more for something when they know that in the future they'll get to keep more of the profits it generates.

Can Bayh, Conrad and Nelson convince their fellow Democrats in Congress and the White House that the best thing for the economy is to extend the Bush tax cuts?

It shouldn't be impossible. The Obama administration has said all along -- it was even a campaign promise -- that the Bush tax cuts for people other than "the rich" would be extended. That's a start. At least there's a willingness to preserve some part of the Bush legacy, as much as the administration constantly demonizes it.

So is it really such a leap to go all the way? Isn't job creation the best way to help the middle class? And if to get job creation, you have to let "rich" people like me pay lower taxes, then is that such a terrible thing?

By the way, if I hire someone at TrendMacro because of lower tax rates, I'll actually end up paying more total dollars in taxes -- after all, I'll have more profits to pay taxes on -- than if I hire nobody because of high tax rates. So the best way to get me to pay more dollars in taxes is to lower my tax rate. And I'll create a new job for someone at the same time.

OMG! I think Bayh, Conrad and Nelson have rediscovered the Laffer Curve! If the other Democrats in D.C. can make the same discovery, there's no limit to how high the stock market can go.