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tv   The Kudlow Report  CNBC  February 15, 2012 7:00pm-8:00pm EST

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for you right here on "mad money." i'll see you tomorrow. >> what's on the show tonight? >> with a failed plan and no budget resolution, is the u.s. about to be downgraded by the ratings agencies? >> good evening, everyone, i'm larry cuddly withkudlow with "t report." entitlement bankruptcy unresolved and in fact, the u.s. fiscal story is so broke we probably won't even have a budget resolution and then there's a $2 trillion massive tax hike that would doom the economy if it would pass. is the u.s. headed for another credit downgrade? a credit bond? serious question. it's a theme of the show this evening. and second tonight, stocks did fall today by nearly 100-point drop in the dow, and i just wonder if fiscal chaos if budget disintegration in the u.s., not just greece, but the u.s. would
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hang up the stock market for a while and interrupt my march to 14,000. first up, let's go to washington and get the very latest on the payroll tax deal. welcome back cnbc's john harwood now with all of the details. good evening, john? >> larry, this deal which is now getting bipartisan support, not finely buttoned up according to leaders that i talked to this evening, expected to be passed this week will add to that deficit, so if you're concerned about deficits, i never thought of you as a republican, but this would add $100 billion to the deficit this year by extending that payroll tax cut without paying for it and also it has $50 billion in money for extended unemployment benefits and for remedying the so-called doc fix, doctors who treat patients under medicare from having their fees cut dramatically and those are paid for the pensions and the government spectrum and that sort of thing. this is a deal that's caused
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some concern among conservatives who care about the deficit above other things because it's sht paid for to the tune of $100 billion, larry. >> it's part of the story and it's a dreary story. many thanks to john harwood in washington, d.c. now president obama headed back out on the campaign trail promoting so-called in sourcing in milwaukee, wisconsin today, but what i heard was more talk of stock market killing tax hikes on american business. please take a listen. >> from now on every multinational company should have to pay a basic minimum tax. and every penny should go to lowering taxes for companies that choose to stay and hire here in the united states upon america. all right. a global minimum tax. there you have it and a big fat credit downgrade. that is my fear. let's talk. we have two distinguished house members. carolyn maloney, a democrat from new york and larry kudlow's congress person and sean duffy,
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republican from wisconsin. we welcome back. carolyn, you know i'm not a happy camper. i want to go to this payroll tax cut just because it's not funded and i want to say the whole budget is not funded and the entitlements are not funded and taxes are going up, and i want to ask you, with everything unfunded and the u.s. on the road to bankruptcy and not even a budget resolution in sight. don't you think we deserve and are headed for a credit downgrade? >> well, larry, don't be so pessimistec. remember that the last jobs report showed that we gained 250,000 roughly private sector jobs. we were gaining private sector jobs for the past 23 months and for five months, the unemployment rate has fallen and so we're trending in the right direction. this is under negotiation now. apparently, there's an agreement from what i've heard between republicans and democrats to agree to the tax benefit, the
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payroll tax benefit for $260 million americans, working americans so they can take home roughly $1,000 during this economic crisis to help them through it. we are still negotiating, as i understand it, although there's an agreement to fix the doctor's reimbursement so they can continue providing services of medicare to our seniors and also extend unemployment to the up employed workers. there are five people waiting for every job through no fault of their own. it's worse in some states than others and so we're looking at ways to pay for it under discussion and it's pension reform. >> why pay for it? sean duffy hick, why pay for that and we don't pay for anything else? and i go back to the big picture, sean? the economy sea growing better. in terms of the spending bond, the entitlement bomb and the tax
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hike bomb, i see us disintegrating here in fiscal terms. that's my big worry, and my question to you is are you or anybody else in the house worried about a credit downgrade among other problems? >> absolutely, larry. as we use these analogies, as you sit on the gulf coast before a hurricane hits, the sunshine is beautiful, but on the horizon is this massive storm coming and that's what we have with our debt. this budget that the president put out, it's not serious, it's political and we'll fall under the $1.3 trillion. that's four years of trillion-dollar debts and the most troubling aspect of the proposal is that there is no balance in sight. there are deficits for as far as the eye can see, and i think the american people want the president to be seriousfiscal f will join hands on that front, but the problem is we're not exploding. this has been the longest downturn that we've seen since the great depression and it's
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because massive regulations and new taxes, at the point when the president wants businesses to invest in america, he's also telling them i'm going to saddle you with more regulation and more mandates and you know what? i'm going to give you higher taxes when everyone else in the industrialized world is decreasing taxes. that doesn't make sense. >> 350 billion in higher business taxes, carolyn maloney. 2 trillion in tax hikes overall. 1.5 trillion in tax cuts. that's amazing $400 billion deficit reduction and the real clirnger, carolyn, this is the part that's worst of all, the senate doesn't want a budget resolution. the white house doesn't want a budget resolution and that's the problem with greece. that was the problem with italy and they tried to tax and spend and they tried to fudge the budget and it didn't work. are you not worried? you're my congresswoman? are you not worried about credit downgrades and other fiscal bomb
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events? >> i am worried about everything and i'm not going stop being worried until every american that wants a job can get a job and we need to grow this economy and make what happened. we make sure that we out innovate, out educate the rest of the world. it is balanced. it does reduce the deficit and we're making some improvements. he did call for the buffett rule that a multimillionaire should pay the same rate as their secretary. i think that's fair. i think all americans have to be part of pulling us out of this downturn and even those that are the wealthiest need to be helpful in this particular challenge that we have. we need to all work together to move forward and be positive about it and continue to grow our economy and grow opportunities and rebuild the american dream, reignite the american dream and what the president is trying to do is not only improve the economy for the people that have made it, but throw a ladder down to help the other people climb up that
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ladder of opportunity. it's education. >> if you raise taxes on the most productive and likely to invest, i don't think they will create opportunity. sean duffy, i'll give you the last word. will the buffett rule on millionaires or any of the tax the rich programs encourage prosperity and budget balance. >> it will stifle growth. >> you move to wisconsin and, let's be clear, tax increases aren't to reduce the debt. they're to increase spending and you will tax your way right down into the whole. we want a pro-growth agenda that allows the manufacturers and small businesses to compete in an ever more global environment and these policies is what the president advocates for is killing the country. think where we would be if we have policies that encourage businesses to expand and grow. >> all right. i have to leave it there. i have to leave it there. we have a disagreement. >> it is upon hadding your
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district. >> that's why it's bouncing back. >> my longtime congresswoman, it's great to see you on the show. sean duffy, it's great to see you back on the show. let's turn to the senate side. democratic leaders say they're making progress on a pending highway bill. our next guest says it's just another xafrmel of washington's addiction to spending and he calls it another rotten highway bill and there's the op ed piece and senator jim demint. one of the points you make in your op ed piece you make, the highway trust fund is basically bankrupt. so i was reading that and i was saying why not? everything is bankrupt. spending is bankrupt. the deficits are bankrupt and the entitlements are bankrupt. why should the highway trust fund be any different? i want to ask you the question i've been asking everybody else. are we headed for a credit downgrade or two because of this bankruptcy? >> larry, i'm afraid we're on the verge of losing this country that so many have worked for and sacrificed for and died for.
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i think it's incredibly serious that the president's budget proposes spending more money and despite his claims will double our debt and we will still do things like highway bills where we take 18 cents out of every gallon of gasoline people buy and we put it up here and put it in the trust fund to build roads and bridges and that's supposed to fund roads and bridges, but now with the highway bill, we're going to bale out the trust fund because we're spending more this year than we should have. so i just don't think people get the urgency. the debt is already bigger than our economy. we can't borrow much more money and yes, i think we're headed for a credit downgrade, i don't know how we couldn't if you look at the president's budget and if you look at the hyperventilating last year, we're spending more this year than we did last yore. at some point, we have to get the message that we have to cut
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spending and the government accountability office is wasteful spending and we cannot get one of those programs on the table to cut. >> let me go back to your highway trust fund because that's a new one. i know the entitlements, medicares, bankrupt. you're saying now, the way we set this highway trust fund up it was supposed to be financed by gasoline taxes and federal gasoline taxes, so it's not, so we have to rescue the thing. you said a couple of years ago we had to have another bailout. where is that going come from? is that going to increase the deficit along with the unfunded payroll tax cut? does anybody care about these numbers adding up? >> well, there are a lot of smoke and mirrors as we call them and the house bill it is we'll take revenues that we might get from new energy like if we open anwar, but this is very prospective in nature and it will never materialize and the democrats will never let us
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open anwar. so to insult the intelligence of the american people to say it's not really deficit spending because we're going to pay for it by future revenues. if we have future revenues we need to pay down the debt and we don't need to be spending money that we don't have and if we combine that with the payroll tax and the dollars, the payment for medicare, we're going to be adding well over $100 billion to our deficit this week at a time when we're all talking about needing to cut the deficit. so larry, it's very discouraging for those of us who really believe that this country cannot add more debt and expect to survive. the only reason we are now is because we're printing money and because the euro's in so much trouble. >> is there another $50 billion bailout of the highway trust fund for so-called infrastructure spending? is that really the thrust of what you're saying? another $50 billion in the hole to bail out the highway trust
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fund? >> i think it is. because we'll borrow the money and they're going to get revenues in the future and we'll hopefully get the revenues out over the next ten years. we play this game with almost every bill that comes true. we need to have some honest spending cuts and begin to move toward a balanced budget, otherwise the credit downgrade will be the least of our problems. >> yeah. i just don't know why nobody else is asking this question, senator. i'm glad to hear that you're at least thinking about it. jim demint of south carolina. thank you, sir. thanks for the op ed piece. coming up on kudlow. the dow dropped 100 points today on concerns about greece. i don't know. i think stocks have a lot of concerns about the u.s. budget bomb that's going off and my 14,000 meltup for the dow may be interrupted ed oed on channeli pal. he's the only guy that has a similar worry about a budget meltdown. are we ready to have it next up
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stocks fall today by nearly a hundred-point drop on the dow. i just wonder, if fiscal chaos and budget disintegration in the u.s., not just greece, but right here, is that going to hang up the market for a while? interrupt my march to 14,000? let's bring in our guests, art hogan, managing director of lazard capital markets and joining us for the first time, we welcome richard berg, ceo of capital partnerpartners. my pal is worried about the budget and the downgrade throughout the impact on the economy in the stock market. i just want to ask you, if you wake up tomorrow or the next day or next week or next month and the rating agencies downgrade, what's that going to do for stocks? >> another downgrade would be really bad because another international rules of the collateral are dependent on
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ratings and i testified in congress that's a bad idea to have everything so tied to ratings, but nevertheless, it would make life a lot more difficult if we had a downgrade. the downgrade in and of itself, who cares. they will sell. other than you have a lot ofustk you'll have problems. art hogan, i'm not making a forecast. i'm just having a risk assessment. the fact that we don't have a budget at all and we're not going get a budget and it's a lousy budget that doesn't solve the spending and entitlement and tax reform problems. last summer when we went through this drill, the market lost hundreds of points on this worry. it was a stock market event and much more than it was a bond market event. art, is it possible that this rally is now stalling as it looks at the fiscal meltdown going on the u.s.? >> it certainly has all of the makeup of exactly what happened
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last time. we had the political nonsense and political theater and we couldn't get anything done. the policy and decision that we saw that made us look ridiculous and ended up with no answer whatsoever and it was followed by a downgrade, a credit downgrade and a market that really hit the skids from the august and september timeframe. they were awful last year. can that repeat itself? it sure can. we're certainly in the same place in tefrrms of gridlocking. are we in the same place of the budget or lack thereof to warn of a downgrade in it might be early. >> i'm not saying it's going to happen tomorrow. it's an issue that needs to be looked at. richard, let me go back to you. what about another issue out there in rand? a lot of saber rattling in the strait of hormuz. you have oil moving through 101, $102 in the march contract. gold is also rising and gasoline prices are starting to react to
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the rise in oil. what's that all about and how will that help the stock market? >> so let's go through what you had with your first guest. politically we're a mess. budgets are a mess. we have titlements that aren't funded. europe is a mess and now we have international tensions. tell me why i should be should be bullish on the stock market with all of those clouds on the horizon. i don't think right now i would want to be in stocks. way too much risk. the down side is so much higher than the upside for all of the reasons you talked about plus the political and plus iran and all of that other stuff. >> there are positives, art hogan. i don't want to sound like a cassandra. i'm raising an issue about the budget, something i know about and care about. what's your response to richard? what's the positive side that could keep the melt up going in stocks. >> the point that richard is missing here and he brynns up what everyone likes to scream about or be concerned about for the last 24 months.
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yes, we need to get a better budget and we need to cut back on spending and we need governments smaller and tax reform. guess what? two of those three things will happen right now and two things will happen whether this year or the last election and with you need to focus is to buy stocks. that earnings growth has been consistent over the last two years and there's a lot of cash in the sidelines that has never moved out of the bond market which was up significantly last year. by default, if you look at stocks versus bonds and those are your two choices. it is much better. >> richard, let me ask you another question. >> i love that reasoning because she's the least ugly girl. okay, go ahead. >> people are saying apple's earnings are so fabulous. abel did lose 26 points today, but the earnings are so fabulous it's distorting all of the earnings and if you exclude apple, i guess in the cent 500, earnings are up 3% instead of 7%
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or 8%. >> how about the nasdaq? it's 30% of the nasdaq. >> what's your take on that? on this apple's earnings affection. >> if you read the book "the black swan. the black swan could be a good black swan or a bad black swan. apple is a good black swan. it is one of those rare occurrences this gets everything right, but it doesn't last forever. so am i concerned? you bet i'm concerned. i don't know what they being possibly do for an encore, but they hit a wonderful black swan, that was a good one with the ipad and the iphone. >> i think the iphone is bigger than microsoft, but art hogan, it's got to be a good thing that apple's making money. it's got to throw off a lot of benefits. this is something that should be celebrated and not denigrated. i'll give you the last word on the apple effect on the market. >> it's bringing the money to a mobility and the halo effect of
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all things that make you mobile whether it's software companies that will go with apple, so there's an entire ecosystem that increases mobility and that's going to be the next leg up of tech and telecom. >> do we downgrade all of the rest of the earnings? >> i don't think that's the way you look at it. i huff the argument and if you left apple 2010 to get a year over year comparison, if you do the real math that's not exactly how it works and it's terrific, sxooim glad they're doing great. >> art hogan and richard berg. thank you very, very much. a programming note. on tomorrow's "kudlow report" i'll speak with richard fisher. coming up next tonight the world bank needs a new president and there's speculation that secretary of state hillary clinton wants the job. we'll have more on that, plus all of the latest headlines coming into the cnbc newsroom.
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will well, could hillary clinton be angling for a new job. jonathan dienst joins us with more on that and all of the late-breaking headlines coming into the cnbc newsroom. what do you think? >> good evening. robert zellic will step down from his post in june. they say they'll put up a candidate soon.
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two names being debated secretary of state hillary clinton and former white house economic adviser larry summers. just in to cnbc, moody's says it might downgrade the credit ratings of 17 global banks because of fragile funding conditions. among the banks mentioned, bank of america, citigroup, goldman sachs, j.p. morgan and morgan stanley. some of the largest european banks are also under review. iran is threatening six european countries that it will cut off all oil supplies to those countries if economic sanctions continue. that sent oil prices soaring to 102 barrels. $100 a barrel and clogs will buy ing pringle potato chips from procter & gamble for $2. billion and they'll bail out of their deal with diamond foods and they came to light. general motors is ending pension contributions to 19,000 white-collar workers. they will instead put money into 401(k)s. sales of corporate jets in the u.s. are rebounding and had
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plummeted with the global financial crisis and the spectrum millionaire investor confidence index says confidence mo among the very rich has risen into the third straight months. the top-selling british newspaper, the sun has uncovered evidence that it paid tense of thousands of pounds in retainers to public officials for tip-offs and finally tonight, the legend of camelot is gone. he will replace the retiree barney frank. the grandson of robert kennedy has never held lkted office. this is the first time in 53 years that no kennedy has served in washington. >> next up on kudlow, is this front-page headline in "the new york times" on to something? is it possible that a better economy could actually relech president obama? we will debate that next up. [ woman ] my boyfriend and i were going on vacation,
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welcome back to "the kudlow report." i'm larry kudlow. remember the famous line, it's the economy, stupid. the front-page headline of "the new york times" today says americans are getting more
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bullish on president obama as the economy improves. is it possible the economy's good enough to actually reelect him? let's talk. our dynamic duo. cnbc contributor robert reich and author of "aftershock" steve moore author of "return to prosperity." brother rice, let me start with with this finding. only 44% approve of mr. obama's handling on the economy. however, back in december, it was only 28% and january, 33%, and now 44%. so i guess progress and direction is everything. what's your thought? >> i think direction is a lot, larry. i think it is unlikely that unemployment is going to be below 8% by election day, but americans clearly are feeling more optimistic and with that optimism goes a more favorable view of president obama. i might add that as long as the republican primary continues and contenders keep on heaping negative ads on each other, the
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likelihood of another president obama turn is increased. >> steve moore. that's robert reich's view and he may be right. >> he bakley says a bullish stock market, better jobs and better economy. i want to ask you if you're worried about that and mind you, the pay to play poll has obama's chances of being reelected at 60%. >> ooh! i think for the first time in the history of this show that bob and i have been on, i think he actually got it right for once. bob is exactly right. >> uh-oh, now i'm a little bit worried. this puts obama in a much stronger position, larry, than he was three months ago and it is reflected in the polls. if you go back to 1980. i think this election is very much like 1980. an incumbent jimmy carter whose numbers bumped up and down. you remember that, larry, by october and november, the numbers just caved in on gemmy carter because the economy went through another recession and that's, i think, the thing that
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democrats have to really realize because as we get closer to the election. as we get closer to early november, that's when investors and taxpayers will start looking at that tax time bomb that is going off on january 1st which means higher capital taxes, higher payroll taxes and larry, i just don't see how the economy is as fragile as it is can sustain that kind of body blow. >> you're been talking about this tax bomb for a very long time and you and larry have both been predicting that the economy will basically bottom out and we might have another double dip because of the obama initiatives and interestingly, obama is just doing just fine. we're not going see anything different in terms of the trajectory of the economy and one of the biggest dangers is europe and the big crieses.
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apart from that i'm very sanguine. >> you've got it all wrong there. look, this has been the weakest recession in recovery to the extent it is a recovery that we've had since world war ii. we are still 5 million short of where we were in 2008. >> it's been the worst recession. it's the weakest recovery sxoots been the worst recession. >> because of the policy. >> obviously we'll have a very weak recovery. >> by the way, 59%, and this was in the poll. 59% disapproves of the president's handling of the budget deficit. >> that's where i was going go. >> i was talking earlier in the show, we have this no-budget resolution and no objection to entitlement spending, deficits and debt, the likely head of a credit downgrade has to grow on a daily and weekly basis and another credit downgrade and that's why i don't think president obama should be
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believing that this thing is in the bag. his biggest vulnerability now is the debt. can a president be releched following $5 trillion. i think you're completely off base on this. the yield is down about 2%. it's easy enough to borrow. they shouldn't be worried about the united states right now. we can borrow very, very easily and on top of that, most americans are not paying attention to the budget deficit. if jobs come back they don't care about the deficit. >> everything is wonderful, even though we have a surplus in housing and look, i think $5 trillion of debt added $15 trillion of national debt. i think the american people can agree with that. >> you can't do what barack obama wants to do in his budget
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which is to continue to borrow $1 trillion year after year after year. >> steve, you understand that the real issue is the ratio of the debt to the good-bdp. >> that's true. >> if we slow the economy down because we cut the deficit and there's not demand, then that ratio of debt to gdp will get even worse. that's what happened in greece. that's what's happening in spain and italy. >> that is 80% of gdp and total growth debt has the economy growing. you don't have that kind of growth. you need 5%, 6%, 7% growth to really make a dent in those gdp ratios. 2% or 3% growth is not going to make a difference. >> larry, if you get growth at all. >> it was approved of the pickal handling. that's a big hurdle for mr. obama. i acknowledge that the economy is getting better and he's got to get over the hurdle of the debt bomb and the tax bomb and i don't think he's getting over
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that. >> what bob reich just said is to bring the debt to gdp ratio down, we have to have more debt. >> no, we have to have more growth. we've got to have more growth and one way of getting more growth is you don't cut the deficit. that would be insane. the thing i'm worried about, frankly is what's going to happen beginning in january 2013, and i think that's the -- >> that's not a debt bomb. we had this deficit cutting bomb that's on the horizon. >> the tax bomb is what it is. >> one reason the economy will be stronger is people are rushing in to invest in 2012 before they have to pay the taxes. >> there is a prediction, larry. >> there will be a sell-off at the end of this year. >> we'll see. i'm just worried about the downgrade right now. [ indiscernible ] >> robert reich and steve moore. thank you, gentlemen. coming up on "kudlow," a very special guest ed laz ir, he will sound off against the obama
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my dad and grandfather spent their whole careers here. [ charlie ] we're the heartbeat of this place, the people on the line. we take pride in what we do. when that refrigerator ships out the door, it's us that work out here. [ michael ] we're on the forefront of revitalizing manufacturing. we're proving that it can be done here, and it can be done well. [ ilona ] i come to ge after the plant i was working at closed after 33 years. ge's giving me the chance to start back over. [ cindy ] there's construction workers everywhere. so what does that mean? it means work. it means work for more people. [ brian ] there's a bright future here, and there's a chance to get on the ground floor of something big, something that will bring us back. not only this company, but this country. ♪ >> even though we have a
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disastrous budget policy on the table, the economy seems to be getting better every day. is it possible that growth can bail out the country, stanford university comings professor ed lazir with the council of economic advisers. thanks for coming back. i'll put on the full screen, we're seeing a pretty roaring recovery right now in manufacturing up better than 8% annually over the past three months. homebuilders confidence is looking better, jobless claims are falling and the isms are actually getting better. let me just ask you, how strong is this economy? >> i think the answer is that it is definitely getting better. no question that if we look at the numbers, particularly of the labor market that the typical american feels most closely to home, things are better there. as you mentioned, unemployment rates are down, initial claims are down. one of the good signs is that they're higher than layoffs and good economy.
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quits are high and the layoffs are high and quits are low. so all of those things are pointing in the right direction. we're seeing the service sector grow. those are most of the jobs. so that's great. the problem is that getting better does not mean good, and if you look at where we are right now, things are still pretty terrible. what do i mean by that? well, take the typical unemployed worker and ask how likely is it that an unemployed worker will find a job. the answer is about two and a half times more likely in 2007 than today. that means it's still a tremendous struggle. >> it is shifting in the right direction. ? i'm sorry? >> the jolt, the so-called jolt studies show. >> right. >> and the quit rates are also showing this that the thing is beginning to shift and where i'm going with this is, look, i know it's not growing at 5% or 6%. >> right. >> not even the president believes that. if it continues on a 3% path will that get us out or help get
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us out of this budget quagmire about which i had devoted most of the show because to be perfectly honest with you, because with no budget and no entitlement reform i'm worried about a ed krity downgrade, but growth can solve a lot of these things. is that possible, ed? >> absolutely growth can solve it, but we're not there and we're not even close. the last quarter, we saw growth slightly below 3%. we were at growth rates. we're pretty close to the long-term average and nowhere near where we need to be to have a significant recovery. so we're not on the right path there. we're moving in a better direction than we were a year ago, but barely and not enough to solve the budget problem. to my mind, the big problem with the budget, i think, if you look at it is if we have too much spending in it, and we have a tax structure that will move us in the right direction in terms of efficiency in growth and we have the promises about the deficit that simply are incredible. so all of those things, i think,
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do not bode well for the future in terms of the fiscal situation. >> i want to ask you about taxes. there are $2 trillion of tax hikes. as a supply sider i object, but the president is touting corporate tax reform with something called a global minimum tax to pick up overseas profits. that's not reform. isn't that just a brand spanking new tax hike on companies operating overseas and a double tax at home? what's that all about? >> yeah. i agree with you. i think that additional taxes on corporations are not the right way to go right now. what we should be doing is moving in the direction of lower rates or even better, what i happen to like is full expensing of capital so that you get big incentives for investment right now and those are the kinds of things that we should be doing, we could be doing, but we're not doing. again, if you look at the international situation and you look at what other countries do with respect to their tax treatment of capital, it's just
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a lot more favorable than ours and that induces capital to move overseas and we're not getting the investment growth that we need. >> to talk about dividends and capital gains taxes increased to rates as high as 39 1/2%. when you couple that with the marginal tax rate on profits, you're talking about taxing capital and taxing investment at 61%. >> 60%, no, that's an important point that passes us through the corporate rate. let me ask you one final thing. the distinguished budget chairman and he makes a cogent case. he's saying, look. if the deficits and debt continue to mount up and they look to the horizon and he sees the problem with medicare which is the single budget buster out there. don't they assume, literally gigantic increases in tax rates, and doesn't that cause businesses and investors and entrepreneurs to pull back. in other words, people are not stupid, ed. they see the debt and they see the problem and they see the
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bankruptcy and the higher taxes that will crush their incentives. i'll give you the last word on that. >> if they don't see them, then i think they're looking if the wrong direction because that's definitely coming. it has to come. there's no way that we can get there without seeing higher tax rates. if you look at the current expenditure structure, we're talking about using the president's numbers. we're talking about spending 38% of gdp in a couple of decades. right now, even if we were out of the recession we'd be collecting 18%. so you're talking about a necessity about a 50% increase in taxes on average in order to close that gap. that's just enormous. that would have a detrimental effect on the economy and that's where we're headed if we don't fix this problem. >> we'll leave it there. ed, stanford university, great to see you. >> thanks a lot. >> coming up on kudlow, bad news for the republican candidates. you what? the rcp, real clear politics
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polling average, shows both republican front-runners, romney and santorum losing to president obama by double digits in michigan. we have a gop message problem. do they have a message problem? we'll ask dick armey of freedom works and a republican strategist up next. obama winning big in michigan.
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>> an upset in the making in
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michigan. look at this, real clear politic polling average shows rick santorum nine points ahead of mitt romney. even worse for the former governor and the whole gop, both republicans are losing to president obama by double digits in the state of michigan. so is there a gop message problem? let's talk to former house majority leader dick armey. he's co-chairman of freedom works and republican strategist vin weber. dick armey, is there a messaging problem here? they're both getting clocked by obama in michigan. >> in michigan, first of all, it is michigan. secondly, they're spending too much of their time badgering with one another and not focusing on the big issues of this country. they're too much sounding like politicians to be attractive to that swing voter out there in, and that activist voter out there that is really looking for an activist alternative to obama's class warfare malarky.
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>> the class warfare malarky, shouldn't all of the republican candidates be absolutely pounding the obama budget into the ground? the failure to cut spending. the $2 trillion in tax cuts and the failure to have a pro-growth agenda and effectively a class warfare agenda. why are they making the point? a contrast between their vision and the president's vision. that issue troubles me. >> yeah. it troubles me, too. the only person, it seems to me, that really gets the enormous benefits that growth can bring to america, bring down the size of the government so it's less of a burden, allow and encourage growth in the private sector paul ryan. these guys have a natural leader if they'll listen to ride and have the courage to follow them. >> as soon as a guy like ryan
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steps out, the liberals -- >> paul ryan gave a devastating message on the show and it was fascinating and vin weber, i know mitt romney talks to paul ryan and we're all kind of waiting for a big, bad, bold jobs proposal for mitt romney and he's coming up in a week or so. is he going provide one? because he's got a problem with santorum while they both have a problem with obama. >> he's been saying all along that he's going to follow that up with a more comprehensive tax proposal. he'll take another step forward at the detroit economic club and we'll have a very clear growth contract with president obama before we get into the fall elections. >> what kind of step then? let me hear about this step, i'm very interested in this step forward. be specific, please? i don't know how specific he'll get in the speech next week.
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his economic plan last fall and summer, he talked about the fact that simpson provides an outline for the kind of reform we can see going forward. >> lower rates and the broader base in the supply side kind of reform. >> he told me that when i interviewed him. he said he was coming out with phase two and i appreciate that he was being candid. dick armey, don't you think the time has come now and he was losing in michigan which could be a big upset and both he and santorum are losing to obama and obama doesn't have a pro-growth message unless you think higher taxes and spending is a pro-growth message. >> i think it's quite the model right now. i think we have a problem. the democrats are stuck in a time warp. the liberals have avoided the message because there's no need for income redistributing and class warfare. we need to grab that message.
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that is what has solved all our problems in the past. just think what would have happened in the '80s, if we hadn't had a pre-growth, growth focused president who understood the power of growth in the economy and understand that today the job is bigger because you must grow down government and rationalize it and reform it in order to grow the economy and the republicans have got to be bold on this. obama can't get it and frankly, i doubt he being understand it, but he will never go there. the liberals will never tolerate him going there. >> see, vin weber. you have to come out there with entitlement reform. mitt romney has a medicare reform package. >> i know, he seldom, seldom talks about it. i think rick santorum does also, he signs on to ryan, but he seldom talks about it. what i'm saying, ven, when the president puts out this package that won't deal with medicare
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and won't deal with soak and raises taxes pretty much across the board on businesses, successful owners and investors, there should be a massive republican response. in other words, you create conflicting visions. here's his vision. here's our vision. >> i don't hear that coming out of the michigan primary so far, ben. i just don't hear it. >> it's all there, larry. you basically said it's all there. the tax plan is there and it's evolving. romney has a very strong entitlement reform plan that paul ryan has praised. the problem is we're right at this moment in sort of a bubble for the president and we have the first good economic news and he's benefiting from it and the republicans are fighting with each other which is the nature of the primary campaign. >> dick armey, mr. armey's tack plan is leave the bush rates alone. rick santorum has a 28% flatter tax plan. isn't santorum's more pro growth?
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>> sure it is more pro growth. let me just tell you, vin, i love you, man, but both larry and i are watching a lot more carefully than most of the american people and if we don't see the governor's plan, it will be hard for anybody else. >> i'm larry kudlow.
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