No Cliff Calamity: That's What Stocks Are Correctly Predicting

Despite all the media hullabaloo about the fiscal cliff and a potential recession if none of the Bush tax cuts are extended, stock markets have behaved calmly throughout this whole period. In fact, as of this writing today, the Dow is up 100 points.

I’m gonna guess that stocks, in their wisdom, are correctly sniffing that there will be no calamitous falling off the cliff. By that I mean there will be no $500 billion tax hike, which would be an economy killer.

Instead, after speaking with prominent Republican House and Senate members, I have come to believe the following: The GOP knows that Obama has the upper hand in this post-election battle. Therefore, they are preparing a strategic retreat.

Republicans don’t want to be the party of rich people and let Obama maintain his hold on the middle class. Republicans also don’t want to be the party of recession. So if no comprehensive deal is reached by President Obama and Speaker John Boehner, Republicans will not block an extension of the so-called middle-class tax cuts, which are roughly three quarters of the total.

It’s hard to know how this story will work itself out. There may be deals on upper-end tax rates, say 37 percent instead of 39.6 percent. And maybe even some lower tax penalties on capital gains and dividends.

Ideally, the GOP can get solid promises on spending cuts and entitlement reforms in return for a tax package. That tax package may include a dollar limit for tax deductions along with the rise in upper-end tax rates. Entitlement reform is also on the table. And so is a roughly $60 billion 2013 spending cut, which carries over from the across-the-board sequester. That is still possible.

But what is not possible is that House Republicans give up their constitutional prerogative to set the debt ceiling. That is their biggest point of leverage. And that leverage will carry over into 2013 as lawmakers once again attempt an across-the-board effort for pro-growth tax reform (flatter rates, broadening the base), serious structural entitlement reform, and more discretionary spending cuts. This will be the battle royale of next year.

As I said, no one knows how all this is going to play out in the next two weeks. But from the standpoint of the economy and the stock market, a worst-case tax-hike scenario that would sink GDP is not likely to happen.

There will be a deal to extend most of the tax cuts. And while higher tax rates on successful earners, small-business owners, and investors are most definitely not pro-growth, at least the across-the-board tax-hike calamity will be avoided.

Richard Fisher: Fed Won't Catch Markets If US Falls Off "Cliff"

Senator Kyl Sees Higher Revenues Without a Tax Hike

A federal budget deal to avoid the fiscal cliff can be achieved without

raising tax rates, Senate Minority Whip Jon Kyl said Friday on the Kudlow

Report.

“Tax revenues can be generated by two ways other than raising tax rates,” he said. “One is to eliminate some of the deductions, credits, exemptions, special provisions in the code that end up producing more revenue but without affecting the rates. And the other is through economic growth.”

The senator from Arizona said he thought it likely a deal could be struck to avoid the so-called “fiscal cliff,” a deadline by which the lack of a federal budget would result in the expiration of the Bush tax cuts and trigger automatic spending cuts.

Kyl sees additional revenues as the key.

“If we can focus, not on tax rates, but to give the president something that he

wants, more tax revenues, as I said, there are ways to get more tax

revenues,” he said. “Either through and/or producing more wealth as a

country, thus resulting in more taxes paid to the government.”

The Republican senator also took issue with the recommendations of the

special committee co-chaired by former Sen. Alan Simpson, R-Wyo., and

former Clinton White House Chief of Staff Erskine Bowles.

“Simpson-Bowles is not a good template here because it sets up a contest

between lowering marginal tax rates and raising the business taxes, that is to

say, dividends, capital gains and the estate tax,” he said. “Simpson-Bowles

in effect says, you can have lower rates on one side or another, but not both.

That’s not good.” 

Once Bullish, Leon Cooperman Grows Wary of Stock Valuations

For years famed investor Leon Cooperman has talked up stocks. But on last night’s show, he sounded the alarm.

Cooperman, who is a widely followed investor and chairman of the hedge fund Omega, has made headlines for quite some time calling stocks 'the best house in the financial asset neighborhood.'

Back in 2011, Cooperman outlined his pro-stock market thesis at length on CNBC.

But on The Kudlow Report, Cooperman made a surprising statement that presumably reflected a shift in his outlook. He told Larry, “I think the stock market presently is fairly valued. I believe the profit cycle is peaking.”

Cooperman went on to say that the market multiple may be too high.

“Historically the market multiple is around 15,” said Cooperman, but over the past 50 years or so the growth rate has been much more robust. If we’re moving into a period of slower growth than the premium investors are willing to pay for stocks will probably decline. 

That’s not to say Cooperman is a seller – he’s not. “I’m not aggressively bullish or bearish,” he explained, “I’m simply saying I think the market is now fairly valued.”

And he reiterated something he’s said many times before. 

“If you must put money to work I still don’t think there’s a better alternative than common stocks – the Fed has made all the alternatives very unappealing."

Nonetheless, his commentary suggests his outlook is shifting.

Cooperman also told Larry Kudlow that he thought all the concerns about the fiscal cliff or the confluence of tax hikes and spending cuts that could go into effect as soon as January 1^st – are overblown.

“They’ll kick the can down the road,” he said. “There’s no way a politician will allow the cliff to hit.”

Does the Fed Have Grave Concerns About the Economy?

On Tuesday, the Federal Reserve re-affirmed its commitment to using unconventional efforts to stimulate the economy.

In the latest Fed statement, the central bank said it would keep buying $40 billion in mortgage-backed debt per month to push interest rates lower.

The Fed also repeated its vow to keep interest rates near zero until mid-2015.

Although that may seem like the Fed is sending a signal to markets that they’re intent to drive the economy, no matter what the cost – that may not be what the Fed is really saying.

According to former Fed Governor Kevin Warsh the move isn’t a show of strength – it’s something far more ominous.

“I think the Fed revealed in their actions just how grave they think the economy is,” he said on The Kudlow Report.

The statement shows, “just how concerned they are about the economy’s prospects – just how concerned they are about the 'fiscal cliff' and Europe.”

Warsh served as a member of the Board of Governors of the Federal Reserve System from 2006 to 2011. From 2002 to 2006, Warsh was Special Assistant to the President for Economic Policy, and Executive Secretary of the National Economic Council.

His take on the Fed – as someone who was once on the inside – is that the Fed feels they’re the only institution standing between the nation and a terrible downturn.

“The central bankers feel their doing it all by themselves – that they’re not getting help from Congress or the administration.”

It seems Wall Street may share the skepticism expressed by Warsh. Again both the Dow and S&P closed lower.

Mitt's Tax Cut Mulligan

For some unknown reason, Mitt Romney dialed back his tax-cut plan yesterday, the same day new reports showed incomes are dropping.

Last month, median household income fell by about $500, and since Obama became president, income is down over $4,500. But under Mitt Romney’s 20 percent tax-cut plan, if he truly believes it and follows through with it, a married couple making $70,000 a year would save over $2,000. And take-home pay for a middle-class married couple earning about $140,000 -- with their tax rate dropping to 20 percent from 25 percent -- would increase by over $7,100. Obama has no such middle-class tax cuts.

So why would Governor Romney tell an Ohio crowd on Wednesday that they shouldn’t “be expecting a huge cut in taxes, ’cause I’m also going to lower deductions and exemptions.”

What is that all about? What kind of message is he sending? Is it pro-growth take-home pay? Or is he pulling back and hedging his bet?

I wrote in my last column about the potential benefits of the Romney plan. And I suggested that Romney should give specific examples of higher take-home pay from his tax cuts. And then I suggested that he draw a red line for middle-income taxpayers, and say “you will not lose you’re your deductions.” In other words, send a true growth message. And make it clear, not muddied.

This afternoon, one of the most senior people in the Romney-Ryan camp called me to say that Mitt misspoke, and that I should give him a mulligan. This person told me there’s no pull-back on the pro-growth tax-cut message, no new overemphasis on debt, and no departure from the Reagan-Kemp tradition.

Okay, even though I’m a tennis player, I’m willing to give Mr. Romney a mulligan. But I’ll say this: The growth message has to be crystal clear for the debate next Wednesday night. Mitt is slipping in the polls. People are confused about his message. He must clarify it.

Lower marginal tax rates. Higher middle-class take-home pay to offset lost income under Obama. More family financial resources. More growth and more jobs.

This doesn’t have to be so hard.

Just How Fragile is the U.S. Economy?

As if the looming "fiscal cliff" isn’t frightening enough, new results suggest it’s already doing very serious damage to the economy. And it’s only September.

According to a new survey released by the Business Roundtable, corporate America’s view of the economy is as bleak now as it was in 2009, when the economy was struggling to emerge from recession.

Also, the survey shows executives are now more likely to cut jobs over the next six months, and that companies are less likely to raise their capital spending.

Largely the CEOs who participated in the study cited the "fiscal cliff," or the confluence of tax hikes and spending cuts that could go into effect as soon as January 2013, as a major influence behind their decisions.

Dow Chemical CEO Andrew Liveris called the fiscal cliff a 'multiplier' that makes any negative catalyst that much worse.

As much as $500 billion in federal spending reductions and expiring tax cuts are due to take effect if Congress and the White House are unable to find a compromise on these issues by Dec. 31, 2012.
As a result, the CEOs also lowered their forecasts for U.S. economic growth.

“The government is failing us as a whole,” charged Liveris on The Kudlow Report. “This is self-inflicted uncertainty.”

They now expect real gross domestic product to rise 1.9 percent in 2012, down from a June forecast of 2.1 percent growth.

In turn, these concerns have already begun to ripple across the economy, and may in part explain the spate of lowered earnings forecasts from companies such as FedEx and Norfolk Southern.

The findings come less than two months ahead of the U.S. presidential election, in which the weak economy and stubbornly high unemployment are shaping up to be key elements in voters' choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney.

The Romney campaign was quick to call out the results as a sign that Obama's economic policies were not working.

"Business leaders have the gloomiest outlook in three years and the President's failed economic policies of higher taxes and more regulations will only make things worse," spokesman Ryan Williams said in a statement.

The Obama campaign did not immediately respond to a request for comment.

“Whatever president and congress we get in November, it doesn’t matter. What matters is that we get one that gives us solutions,” said Liveris.

CEOs who participate in the Business Roundtable collectively generate $7.3 trillion in annual revenue and employ some 16 million people.

Romney Didn't Make the Sale

Did Mitt Romney make the economic sale at the Republican National Convention? Did he convince people who are living at the margin or unemployed and discouraged that he has the answers to the economy? Frankly, I don’t think so.

I do not understand why he did not talk about his 20 percent across-the-board personal tax cut plan that would help the middle class enormously. He never mentioned it and he went into no detail on the business tax cut plan.

This plan is terrific for competition and global investment. He talked about a jobs tour. I frankly have no idea what a “jobs tour” is. I do know that 23 million Americans need jobs. I don’t know that they need a president on a jobs tour to inspect them.

It concerns me that in the economic zone, he didn’t make the sale to the independents, so-called Reagan Democrats, or to Clinton Democrats. I didn’t hear anything new. I didn’t hear anything specific, and it troubles me. I do think he helped himself enormously with his biographical narrative. He came off as a humble, grateful man.

Again, on the economic front I don’t think he made the sale; I don’t think he convinced the independent voters and I don’t think he’s going in the right direction in tax policy.

ON BIG BUSINESS:

I think he needs to be more specific. It’s not about big business -- it’s really about small business. And guess what? Small businesses pay the personal tax rate — the LLCs and the S-corps. That is another reason why I don’t understand why he doesn’t talk about the 20 percent tax cut. It helps small businesses and it’s the opposite contrast to Obama, who wants to raise taxes on those people. I didn’t hear any contrast Thursday night, except a passage on success. The best line from an economic standpoint was “In America, we celebrate success, we don’t apologize for success." That is a great line, but I wish he had more contrast with President Obama.

ON MARCO RUBIO:

Sen. Marco Rubio’s introduction of Romney was one of the most brilliant speeches I have heard in a long time. Freedom was his key point. America is about freedom — economic freedom, political freedom, religious freedom, and faith. It was just utterly brilliant and the guy is an absolute Republican superstar.

Paul Ryan's Speech: Too Much Debt, Not Enough Growth

Republican vice-presidential candidate Paul Ryan gave a powerful speech Wednesday that repeatedly brought conventioneers at the Republican National Convention in Tampa to their feet.  I am going to give him high marks for his speech’s delivery.

Ryan, in typical fashion, seriously and analytically ripped apart the Obama Economy, what has been called Obamanomics.  He ripped it to pieces, and it needed to be done.  But most especially, he ripped apart Obamacare.  Ryan also did his level best to defend the Republicans against the usual attacks on Medicare reform—that is, what the Democrats call “Mediscare”.

However, I was disappointed that his economic growth solutions were somewhat muddled and unclear.  At one point in the speech, rather than speak about Mitt Romney’s own tax rate proposals, Ryan used the term “tax fairness,” a Democratic term frequently used by President Obama and other liberal Democrats.   This was surprising to me.   Ryan cited Jack Kemp and the Reagan tax reform (and I am, of course, part of that gang).

But the reality is, Ryan never mentioned tax cuts during his speech.  Not the 20 percent across-the-board supply-side reduction in marginal tax rates, nor the 25 percent corporate tax rate down from 35 percent.  These pro-growth measures have been proposed by Mitt Romney, but it is a mystery to me why Ryan did not mention them.  

He dwelled on debt to an extreme point.  I don’t think discussing debt connects with people who are unemployed or marginally employed.  I think they want a good-paying job, and debt is almost an academic abstraction.    When Republicans run on debt and deficits, they almost always lose.    When Republicans run on growth, limited government, lower spending, lower tax rates, and de-regulation—they win.  Ryan’s speech was confusing on the growth issue, and that was disappointing;  I don’t want to be confused and the American people shouldn’t be confused.

It will be left to Mitt Romney on Thursday night to clarify his own growth policies.   I want growth, growth, growth.  Wednesday night,  I didn’t get growth, growth, growth;   I heard debt, debt, debt. 

Larry Kudlow Interview at the RNC

Kudlow Goes One-on-One with Paul Ryan

On last night’s Kudlow Report, Paul Ryan talked to me about pro-growth policies and the American idea. He defended his Medicare option as a bipartisan plan going back to the Clinton era. He talked supply-side tax reform, along with spending reduction, deregulation, energy, and sound money. Preventing the fiscal-cliff recession threat will be Romney-Ryan’s first action. 

No July Recession

While the fiscal-cliff tax hike still hangs like the recessionary sword of Damocles over the economy, the economic stats for the month of July do not show it. In fact, key data points suggest there is no double-dip recession. All in all, it’s still an anemic 2 percent economy -- the worst recovery in modern times dating back to 1947. But at least for the sake of the country, there is no recession in sight for now.

The 163,000 jobs gain for July -- even with a lot of weakness inside the report -- was a move away from recession. Retail sales had dropped for three-straight months, which made a recession look perilously close. But the July number came back at 0.8 percent. And today’s industrial-production report also surprised on the upside, with a manufacturing gain of 0.5 percent. That sums to 1.7 percent annually over the last three months and 5 percent over the past year. Prior to these releases, the ISM reports hovered around 50, which does suggest ongoing weakness. But it’s not yet a true recession signal.

Finally, the consumer price report for July shows zero inflation for the second straight month. The CPI is actually rising only 1.4 percent over the past year. Energy prices have fallen 22 percent annually over the past three months while food prices are up only 1.1 percent during that period. The Midwestern drought could drive up the food-price component, but it looks like it will be a manageable event -- not a catastrophe.

Now, a roughly 2 percent economic growth rate is only half the growth we ought to be having. In fact, Mitt Romney’s economic plan targets 4 percent growth. And supply-side tax cuts, spending restraint, lighter regulation, and a stable dollar could surely revive the animal spirits to get us back to that 4 percent number.

But that’s for the campaign trail. All I’m saying here is that the July economy does not show recession. For the sake of the country, that’s a good thing. But surely we can do better.

A lot better.

Paul Ryan's Old-Fashioned American Vision

Talk about apcryphal, here’s one of my better Kudlow forecasts regarding Paul Ryan as the conservative man of the year.

This was originally printed in Human Events in December of 2011.

When you think of Republican congressman Paul Ryan, terms like earnest, serious, and important come to mind. So does the term old-fashioned. Ryan comes from an old-fashioned place, the blue-collar town of Janesville, Wisconsin. He cherishes the old-fashioned values of a faithful family man. He even looks old-fashioned, with his white shirts and striped ties. And he uses old-fashioned argument skills, persuasively weaving big-picture themes with the numbers that back them up.


And Ryan has old-fashioned goals, too, like saving America from fiscal bankruptcy, economic stagnation, and a European-style entitlement state.

“Just look at what happened across the Atlantic,” Ryan told me in a year-end interview. “We have to avoid that. We must reclaim our founding principles of economic freedom and free markets. We must preserve the American Idea.”

With this vision, and with a pro-growth budget framework called “A Roadmap for America’s Future,” Ryan’s serious ideas have seriously gotten under President Obama’s skin.

In a White House meeting this year, Ryan’s superior knowledge of health care baffled Obama and left him speechless. And the serious Ryan budget, which lowers spending by $6.2 trillion and reduces deficits by $4.4 trillion over ten years, totally outflanked the White House. It embarrassingly exposed the Obama administration’s flimsy and inconsequential 2012 budget, which even rejected the findings of Obama’s own Bowles-Simpson fiscal commission. (Another Oval Office embarrassment.)

And when Ryan unveiled his first Medicare-reform package, which featured patient-centered consumer choice and market competition, the White House went nuts. Team Obama whipped up a Mediscare panic, resorting to a fictional caricature of Ryan forcing old ladies off a cliff. But the charge that the Ryan plan “ends Medicare” couldn’t be further from the truth. The website PolitiFact labeled this “the lie of the year.”

Ryan later amended his Medicare reform to keep the existing system as an option, and bolstered it with a menu of market-based private insurance plans to promote cost-cutting choice and competition. But he did so with the bipartisan support of Sen. Ron Wyden, a Democrat from Oregon. How did the White House react? It went rhetorically ballistic, although it couldn’t put together a serious response.

No, Ryan’s reforms didn’t quite resonate in the White House. But they did force a serious debate about domestic policy and the economy throughout the country. With his comprehensive budget of deep spending cuts, entitlement reform, and tax simplification -- a plan that would strictly limit government and unleash growth at the same time -- Ryan became the most influential Republican of his younger generation. Quite likely, he became the most influential thinker in today’s GOP. For these reasons, Paul Ryan has been chosen as the Human Events Man of the Year.

The Ryan “Path to Prosperity” budget passed the House this past spring. In effect, it became Republican policy. Unfortunately, things went downhill after that.

The summer debt-ceiling crisis produced a meager $1 trillion in spending restraint, way below the Ryan goals. Then the Supercommittee, which couldn’t even produce a policy, fell back on the trigger of another $1 trillion in automatic spending cuts. And now the year is ending in a chaotic and unserious gridlock over the temporary extension of a temporary payroll tax holiday that has no economic-growth content and ultimately would blow more holes in the Social Security trust fund and the overall budget. A disappointed Ryan told me, “Tea Party enthusiasm hasn’t yet translated into the kind of reforms we need. One-third of the government has only limited political power.” He added that the 2011 budget narrative shows “the total un-seriousness of the left in tackling problems.”

Nevertheless, the Republican budget leader is an eternal optimist. He believes “there is a shift to the right” in the country, “toward free-market approval.” He sees evidence that “We are winning this debate.” He says, “The country will not accept a permanent class of technocrats that will diminish freedom, enhance crony capitalism, and allow the economy to enter some sort of managed decline.” Ryan talks about “reclaiming founding principles,” and about “fighting paternalistic, arrogant, and condescending government elites who want to equalize outcomes, create new entitlement rights, and promote less self-government by the citizenry.”

In other words, Rep. Paul Ryan is offering a completely different vision than the one Obama outlined in his Osawatomie, Kansas, campaign speech in early December. Ryan wants “the right to rise,” not a third wave of liberal progressivism. He wants to stop Obama’s attempt to add to the New Deal/Great Society with the statist universal-health-care program called Obamacare and an effective nationalization of the energy and financial sectors. And he completely rejects Obama’s divisive, big-government, punish-wealth, tax-the-rich leftist populism.

“A ruling system of big business, big government, and big-government unions does violence to the notion of entrepreneurial capitalism,” Ryan told me. “Whether it’s TARP, Fannie or Freddie, cap-and-trade, or Obamacare, this must be stopped.” Ryan stands against what he calls “the moral endgame to equalize outcomes.” He says: “No consolidation of power into a permanent political class. Equality of opportunity, not result.”

Drawing from the Declaration of Independence, Ryan believes that individual citizen power in a democracy comes from God and natural rights, not government. And he believes these natural rights flow directly to the people. It complements what Reagan always said: Government works for the people, the people don’t work for government.

The congressman calls himself a second-generation supply-sider, flowing from his mentor Jack Kemp. He knows that growth incentives work, and that our tax system should reward success, not penalize it. Ryan frequently notes that Obama’s vision would raise federal tax rates toward 50 percent, which doesn’t even include increasing state and local tax burdens. Countering this, the Ryan roadmap features a modified flat tax, with two brackets and a 25 percent top rate.

But Ryan also believes that under the threat of fiscal insolvency, supply-side tax cuts must be accompanied by entitlement reform, deep spending cuts, and an end to corporate welfare. Rounding out his policy proposals, the budget chief wants the Federal Reserve to move to a single mandate for price stability and a stable dollar.

So, many have asked, why didn’t the intellectual and policy leader of the GOP run for president? His supporters continue this drumbeat, with many hoping for a deadlocked convention in August, and the emergence of an optimistic, pro-growth, center-right man with a clear vision to save the country.

Well, here comes the old-fashioned Ryan, a man who’s interested in policy, not personal ambition. He also has to help raise his young family. He and his wife Janna have two boys aged seven and eight and a girl aged nine. He’s been teaching his nine-year-old Liza how to shoot a .243 light-caliber Remington 700 bolt-action hunting rifle. The weekend before Christmas, he took his crew to Medieval Times on the North Shore of Chicago, where they watched knights on horseback jousting with each other while eating a little junk food. Family is clearly more important right now than presidential ambition.

So would he become OMB director in a Republican administration? “I don’t think about it,” he said. But for the 2012 election, Ryan has a political vision: Republicans must develop and communicate a clear policy agenda along the lines of his “Path to Prosperity.” Then, should they win, the GOP can use this agenda to govern effectively.

“Reagan had this right,” Ryan told me. For the congressman from Wisconsin, it’s the American Idea. That’s Ryan’s vision. And the Republican party better take notice, because this election could be America’s last chance for a very long time.

One-on-One with Mitt Romney

Mitt Romney unveils his 5-point recovery plan: energy, trade, balanced budget, education, and economic freedom to keep taxes and regulations low.

He also blasts Obama for “you didn’t build that” and contrasts that with his own free enterprise reward success philosophy.

One-on-One with Treasury Secretary Timothy Geithner

One-on-One with Former Fed Chair Alan Greenspan

Dan Gross of Yahoo! Finance Interviews Larry Kudlow

MITT ROMNEY NEEDS TO SEND A CLEAR MESSAGE TO VOTERS ABOUT HIS ECONOMIC PLAN

Larry Kudlow, anchor of The Kudlow Report on CNBC and a budget official in the first Reagan White House, says this year's presidential election will be a referendum on the economy and President Obama.


The U.S. unemployment rate remains staggeringly high above 8 percent and is improving at a snails pace. The June jobs report Friday showed jobs were up from the previous month with 80,000 payrolls added, but still fell below expectations of 100,000 jobs. The problem facing Obama is the stark fact that no President since WWII has won re-election with unemployment above 7.4 percent.

Kudlow says Presumptive Republican presidential nominee Mitt Romney can win the election on his economic policies, but he has to communicate them better to voters.

"The trick for Mitt is to make the case with clarity that he's the guy to get jobs and growth going again," Kudlow tells The Daily Ticker's Dan Gross.

He says Romney should take a page from Reagan's 1980 election playbook: limit government, roll back spending, roll back regulation, strong defense, curb inflation.

"Mitt Romney needs to figure out what his four or five bullets will be," says Kudlow. "He has to say what he will do to turn around the country."

Kudlow says Romney has a plan but "hasn't marketed it well." He argues that Romney will hammer Obama on raising taxes including those to pay for Obama's health care plan, which the Supreme Court ruled last week was constitutional. But Romney needs to be optimistic and specific. The former Massachusetts Governor has to spell out he will "grow jobs and the economy, limit government deficits and debt so we won't be like Greece." Romney will get plenty of opportunities to sell his platform but Kudlow says his acceptance speech at the Republican convention in Tampa in late August will be "absolutely the most important speech in defining his campaign."

A Tax Is a Tax Is a Tax

Of course the stock market dropped about 130 points. Twenty new or higher taxes across-the-board are bad for economic growth, bad for job hiring, bad for investors, and bad for families.

A tax is a tax is a tax, according to Judge Roberts. But he forgot to say that if you tax something more, you get less of it.

Presumably Mitt Romney will make this case in a major way. Hopefully he won’t forget that Obamacare is not just a huge tax hike. It’s also a major new spending entitlement that’s already pegged at $2.5 trillion and will increase the federal debt burden much faster than the GDP expands.

In other words, tax, spend, regulate, borrow. The Obama mantra. Romney must go after it -- time and time and time again.

Bankrupting the economy is not exactly a job-creator.

No Economic Miracle if Obamacare is Overturned

It may well be that the complex tax-and-regulatory mandates embodied in Obamacare have proven to be a deterrent for business job creation. You hear it all the time from men and women in business -- especially smaller businesses, but large companies too.


However, color me skeptical that business will embark on a hiring binge if the Supremes overturn the Obamacare mandate tomorrow. Why? Because the uncertainty premium about future health-care policy is still going to be high, and it won’t be resolved until well after the election. Businesses will have almost no idea what Congress will propose if the Supreme’s strike down Obamacare.

For example, it’s going to take money and high insurance premiums to cover preexisting conditions. There also are the stay-at-home 26 year olds and the so-called health-care market exchanges among the states. There are many other issues to be resolved, but the big question is: How will they be financed?

Will there be a tax? Will there be regulations?
One thing’s for sure. A pure free-market health-care system is not going to happen. Many Republicans talk about a patient-centered consumer-choice system, which would be great. Give consumers tax credits for the same deductions that businesses now have. That also would be great. Include interstate insurance competition. Another winner. Tort reform. Another plus.

But the fiscal reality for health-care insurance and payouts to doctors in hospitals is going to be up in the air for quite some time. It’s a known unknown. And because of that, I think businesses are still going to sit on their hands until they know with greater certainty what the costs of hiring the extra worker is really going to be.

For the foreseeable future, there’s no economic miracle if the Supremes strike down Obamacare (as I believe they will).

One-on-One with Marco Rubio

The run-up to the presidential election is really a debate about growth and taxes, Sen. Marco Rubio of Florida told CNBC on Monday.

“Growth helps the debt be more manageable, unemployment, all of these things,” he said in an interview on “The Kudlow Report.”

“Tax increases do not lead to growth,” he said. “The reason why I oppose increases in taxes is not some religious objection, or even an ideological one. It is the knowledge that increasing taxes discourages growth.”

Rubio said that taxes remove money that was going to be spent into the economy. “When the government spends that dollar, they’re going to be a lot less efficient, a lot less stimulative,” he said.

Rubio, who is being considered a vice presidential running mate by presumptive Republican nominee Mitt Romney, also spoke about the debt crisis, health care and Arizona’s controversial immigration law, on which the U.S. Supreme Court ruled Monday.

Asked by Larry Kudlow whether there could be a compromise like the one former Florida Gov. Jeb Bush mentioned in an earlier appearance — $10 of spending cuts for every $1 of revenue increases — Rubio held firm.

“I’ve always believed that was a false choice. The goal is not to give each side what they want,” Rubio said. “The goal is to solve the problem.”

Hours after the nation’s highest court upheld one of the most controversial parts of Arizona’s immigration law — that police can make checks for immigration status — Rubio agreed with the decision. “I’ve always believed the Arizona immigration law was constitutional,” said Rubio, the son of Cuban immigrants, even as he admitted “mixed feelings” about it initially.

Part of the law that was upheld instructs law enforcement officials to verify the immigration status of anyone they detain.

“I understand why Arizona did it. I understand why the people of Arizona are frustrated. I believe they have the 10th Amendment right to pass that law,” he said.

But the federal government, Rubio added, needed to fix the problem with a few steps: “Secure the border, have an electronic verification system in place and modernize our legal immigration so it reflects the 21st century needs of our country.”

Weighing in on health care, Rubio said he would like to see the Obama administration’s Affordable Care Act be replaced with a free-market system in which insurance companies compete for consumers’ dollars.

“I think once there’s more choice, once the consumeris in charge of their health care dollars, the market’s going to meet that demand. Now all of a sudden, companies are going to try to figure out how to make themselves more attractive so that you choose them over somebody else. Right now they don’t have to do that,” he said.

“From the point of view of the marketplace, insurance companies, if they want my business, if I control my health care dollars, and I get to choose from any insurance company I want, I’ll go to you and say, ‘Hey guys, I would love to buy your insurance, but I have a kid who is sick. Will you cover them as well? Because this other guy will cover them, and I’ll go with them if you don’t do the same.’ I think that now the consumer is empowered to make that argument.”

Rubio said that for chronically ill Americans, state governments could create high-risk pools to provide insurance.

“I think that’s the one focused, narrow place where government — state government — can be helpful to folks,” he said.

Rubio was not asked about any possible run for vice president. On NBC’s “Meet the Press” on Sunday, Rubio declined to answer questions about it.

One-on-One with Jeb Bush

Former Florida Governor Jeb Bush on Wednesday hailed the outcome of the Wisconsin recall election, praising Governor Scott Walker for emboldening conservatives in their drive to slash spending on a national level.


“He’s a courageous leader, and he was rewarded for courage,” Bush said on CNBC’s “The Kudlow Report.”

“In a world of dysfunction, it’s really good that a guy like that, who had the courage of his convictions and acted on them, is rewarded with a victory. I don’t even know why we had the recall to begin with, but if there was to be one, better to win by a bigger margin than he won in 2010, with a higher turnout. I think it’s a leading indicator of one thing, which is the intensity of the conservative side of politics is now stronger than the liberal side.”

The prediction might be partly wishful thinking.

In an exit poll of Wisconsin voters by ABC News, a majority — 51 percent to 44 percent — said they would support President Obama over Republican challenger Mitt Romney if the election were held that day.

Voters also picked Obama over Romney, 42 percent to 38 percent, to do a better job handling the economy, as well as by 46 percent to 37 percent on “helping the middle class.”

Bush said the recall election results — which Walker won with 53 percent of the vote to Democrat Tom Barrett’s 46 percent — represented a “spanking” for unions.

“It’s a spanking because they made it that way,” he said. “They raised the stakes, they made this a national campaign. All of the leadership, Debbie Wasserman Schultz of the Democratic Party and the union leaders all said that all roads lead through Madison, basically as it relates to the national campaign. This was a national statement.”

Walker’s victory, Bush said, also meant the Tea Party movement was alive and well.

“They play a huge role in reminding people we’re on an unsustainable course when it comes to spending at every level, and Scott Walker takes the general belief and does something really novel; he acted on it,” he said.

Bush reiterated that the United States government was on an “unsustainable course.”

“The only reason we’ve been allowed to stay on the course is a monetary policy of zero percent interest rates and the fact that Europe has bigger problems than we do, so... we’re slightly larger than the next midget, basically,” he said.

Creating 40 cents of debt for every dollar of federal spending, Bush added, was “not sustainable.”

“Never in anybody’s wildest dreams could anybody say that this is sustainable, so it seems to me that if you could — if you’re in a position of leadership, you have to find creative ways to find common ground, maybe through the tax code, maybe looking at exemptions,” he said.

Bush took a shot at cutting entitlement programs — Medicare and Social Security — though not by name.

“If you could get a cap on entitlement spending in the out years, you are going to save trillions of dollars, not billions of dollars, and in order to bring people along, are you going to have to look at the tax code,” he said. “And so, dealing with exemptions in some way that might satisfy the left to deal with the unsustainable entitlement problems we face. I don’t know what the exact deal would be, but Chris Christie is right about one thing, it requires leadership.”

Bush also criticized Obama for “dividing” instead of finding “common ground,” while defending his brother, former President George W. Bush.

“You’re in the fourth year of your presidency, it becomes unbecoming to constantly be blaming the past for your failures,” he said. “And it’s just not — I don't think politically — helpful to do that. And so, yeah, I mean, I think my brother gets a bum rap, but that’s just the way it is.”

Shiller Backs Away From 'Late Great Depression' Remark

After declaring that the world was in a state of “late Great Depression” on Tuesday, renowned Yale economist Robert Shiller hedged his words.


“Did I say that? Well, I think there are a lot of analogies to what we’ve been going through to that of the Great Depression, but I don’t really think we’re in a depression, so I might have said it slightly wrong,” he said in an interview on CNBC’s “The Kudlow Report.”

Shiller, co-developer of the Case-Shiller index on housing trends and author of “Finance and the Great Society,” said that while the United States wasn’t in a recession, certain elements of the economy resembled one.

“The persistence of high unemployment is a problem,” he said, along with interest rates at “Depression levels.”

On Monday, Shiller told “Squawk Box Europe” that the world was in a “new age of austerity.”

“Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now,” he said in that interview.

Asked by host Larry Kudlow on Tuesday about whether the economy was in a recovery, Shiller said “not quite”.

“Depends on how you define these things. In some ways, we are not in a recovery. Look at the employment-population ratio. It’s stuck at 58.5 percent. That’s kind of close to the lowest it’s been in this whole debacle,” he said. “We haven’t recovered jobs. Unemployment rate is down, but that is because people have left the labor force.”

Shiller also reiterated his support for government stimulus.

“I’ve been advocating raising taxes and expenditures as a temporary measure to get us out of the weak economy. That’s the balanced budget multiplier first proposed by William Salant and Paul Samuelson in the 1940s,” he said. “Now’s the time to use it.”

Challenged on the idea that President Obama’s stimulus hasn't worked, Shiller defended the idea.

“We’ve had a worse recession than anybody expected. I don’t think it proves that the principle is wrong. I think we need to do that,” he said. “We can’t give up on the economy.”

“There’s no impact on the natural debt,” he added.

Shiller also said he believed in market forces.

“I would like to see financial markets expanded,” he said, adding that he had faith that the stock market was still a good bet.

Asked to weigh in on Jeremy Siegel’s prediction that the Dow Jones Industrial Average would hit 17,000 by the end of 2013, Shiller took a more modest outlook.

“I agree with him that stocks are a good investment,” he said. “I’m just not as high and gung-ho as Jeremy is.”

Why Businesses Aren't Investing in the U.S.

Businesses aren’t investing in the United States because of a lack of consumer demand, International Paper CEO John Faraci said Friday.


“I think this was all about consumer spending and demand. You know, the problem we have is there’s inadequate demand to create jobs. We know how to respond when there is demand,” he said on CNBC’s “The Kudlow Report.”

The U.S. Commerce Department estimated that gross domestic product expanded at a 2.2 percent annual rate in the first quarter, falling short of analysts’ expectations it would grow 2.5 percent and slowing down from the fourth quarter’s 3-percent rate.

Consumer spending has been damped partly because the nationwide housing market has yet to recover, he said.

“Until it does, we’re not going to see the kind of consumer spending you would expect coming out of a recovery,” he said.

Asked again by host Larry Kudlow why companies were not investing, Faraci once more pointed to demand that has not materialized.

“Productivity has obviously been very good, so we’re creating more capacity with less resources. But at the end of the day, this is really about responding to demand, whether it’s automobiles or packaging products we make for a whole variety of industries and end users,” he said.

“We’re investing in India. We’re investing in Russia. We’re investing in Brazil. Not to ship products back here but because demand exists in those markets,” he said. “At the end of the day, this is really about responding to demand. We’re not going to go out and invest unless there’s demand.”

Earlier in the day, International Paper posted a better-than-expected quarterly profit on strong sales of shipping boxes and paper.

“I feel very good about the rest of the year,"Faraci told Reuters. "It’s not a macro-bullish story. It’s a macro-positive story.”

Don Peebles, CEO of Peebles Corp., a real estate developer, said that housing remains a drag on the economy.

A strong market, cheap money and high leverage fueled growth before the financial crisis, he said.

“What’s happening now is the housing market is not able to carry the economy,” he said. “Americans’ wealth has been decimated as a result of the lost value in their homes.”

Peebles also acknowledged, as the only small-business owner, that rising health-care costs and uncertainty over taxes were a challenge. But, he added, the No. 1 issue was access to capital.

Mort Zuckerman, founder of real estate investment trust Boston Properties and publisher of the New York Daily News and U.S. News & World Report, took aim at the slow growth.

Zuckerman blamed the housing-market collapse, as well as health-care costs and what he called an “inadequate, badly structured stimulus program.”

“Clearly, you should’ve had a GDP growth now of somewhere between 6 and 8 percent, with the degree of monetary and fiscal stimulus,” he said.

One-on-One with Governor Mitt Romney

In my latest interview with former Governor Mitt Romney, he emphatically defends his own business success against Obama’s class warfare/Buffett Rule/Romney Rule attacks. Don’t look for Mitt to back off from his free enterprise vision.

He also told me he will go after HUD and DOE for budget cuts and consolidation, along with a slew of other agency cuts. He will also roll back tax deductions for upper-earners while he lowers marginal rates by 20 percent across-the-board. He does not want more stimulus from the Fed. Thinks blaming speculators for high energy prices is completely wrong.

He would roll up his sleeves to deal with taxmageddon immediately during his transition if elected. And wants his Veep to be able to lead the country as president if that were necessary. He believes women can meet that requirement as well as men. Take a listen:

GE's Jack Welch Blasts Obama's Leadership

President Obama’s “divide-and-conquer” approach isn’t what great leaders do, Jack Welch said Thursday on “The Kudlow Report”.

The renowned former General Electric CEO chided the president for blaming others for economic woes.

“It was the insurance executives in health care. It was the bankers in the collapse. It was the oil companies as oil prices go up. It was Congress if things didn’t go the way he wanted. And recently it’s been the Supreme Court,” he said.

“He’s got an enemies list that would make Richard Nixon proud.”

Welch, who helmed GE for 21 years and founded the Jack Welch Management Institute at Strayer University, penned an op-ed article for Reuters with wife Suzy Welch this week in which he tackled the idea of Obama’s enemies list.

“Surely his supporters must think this particular tactic is effective, but there can be no denying that the country is more polarized than when Obama took office,” Welch wrote, making a case for presumptive Republican presidential nominee Mitt Romney.

“Without doubt, Romney is not the model leader (his apparent lack of authenticity can be jarring), but he has a quality that would serve him well as president — good old American pragmatism,” he wrote. “Perhaps that’s the businessman in him. Or perhaps you just learn to do what you’ve got to do when you’re a GOP governor in the People’s Republic of Massachusetts or the man charged with salvaging the scandal-ridden Salt Lake City Olympics. If Romney’s long record suggests anything, it’s that he knows how to manage people and organizations to get things accomplished without a lot of internecine warfare.”

In 1981, Welch became GE’s youngest CEO, and increased its market value by $387 billion, making it the world’s most valuable company. But the move came in part by slashing GE’s workforce by more than 100,000 workers, earning him the nickname he despised, “Neutron Jack,” a reference to the bomb designed to eliminate people while leaving buildings intact.

Welch argued that “great leaders are interested in coalescing” the way they would run a company.

“You don’t have one division pinned against the other,” he said. “You try to get the whole company pull together.”

I asked him whether he thought Romney could win the White House. “Absolutely,” he said. “It’d be great for the country. We’d be a stronger country. We’d have more jobs. We’d have more people getting a piece of the pie. And we wouldn’t have this divisive nature that we have with this president, screaming at one group and then screaming at the next group in a high-pitched voice.

“He was in Florida this week screaming and yelling about rich people. He went after the Supreme Court. We’ve got to stop this, Larry.”

Earlier in the interview, Welch said he was seeing modest growth in short-cycle sectors such as food and chemicals, along with “real strength” in non-residential construction and infrastructure.

“While the economy was strong, it wasn’t accelerating the way I thought it would after the fourth quarter,” he said.

Tailwinds included consumer confidence and the Federal Reserve.

“On the negative side, though, we’ve got gasoline prices, we’ve got Europe, we don’t know where China is going and we’ve got tax increases right around the corner,” he said.

A King Dollar Tax Cut

You wouldn’t know it from falling stocks, but the Fed’s apparent decision to hold off on future bond buying, or QE3, in response to an improving economy may turn out to be a very bullish omen for the equity market and the economy.

In fact, less stimulus from the central bank sets up a potential tax-cut effect. Here’s why: Limits to the Fed’s $3 trillion balance sheet will bolster the value of the dollar.

The beleaguered greenback has fallen roughly 40 percent over the past ten years as a result of the Fed’s interventionist go-stop-go policies. Since the banking crisis of 2008, the dollar has dropped 8 percent.

But as the Fed ended QE2 last year, and as its bond-buying “operation twist” comes to an end in June, the dollar has started rising. In response, gold prices have been falling significantly. Slower money creation will do that.

And along with gold, oil prices are now slipping lower, with West Texas crude approaching $101. Still too high, but much less scary. Wholesale unleaded gas prices also could fall in response to the drop in crude, which might take the pressure off retail gas at the pump. If that’s the case, and the King Dollar scenario plays out, the recent energy-price shock could reverse, imparting a mild tax-cut effect on consumers and businesses.

Although Bernanke & Co. do not target the dollar, a stronger greenback is the surest way to bring down energy and food prices, which all too often have plagued households and the economy.

The Joint Economic Committee has estimated that the cheap dollar has contributed about 45 cents to the rising gas price. Lately, with the drop in crude oil, nationwide gas prices could be starting to level off at just over $3.90 -- even though refiner closings and bottlenecks in some parts of the country have pushed that price much higher.

No, a stronger dollar won’t offset the failure to implement the Keystone Pipeline. But it could provide some motorist relief at the pump.

The point is, if the Fed quits printing new money, the value of dollar money will go up. And the inflation tax will go down. Despite Ben Bernanke’s economic worries, the Fed is beginning to see that the economy is at least growing by roughly 3 percent. That’s not fabulous, but it’s not bad either.

The latest ISM surveys for manufacturing and services, the decent 209,000 ADP employment report for March, and pretty good car sales all suggest that the first-quarter economy was just as good as the fourth-quarter economy. And these economic stats are moving the Fed away from more easing moves. Hence, King Dollar is recovering at least a bit.

The dollar view on the economy and stocks is a minority case, but a very important one that should not be overlooked. During prior stock market booms, particularly in Reagan’s first term and Clinton’s second term, King Dollar rose and gold fell, oil prices came down, and foreign capital sought out dollar investments in the U.S. because of the reliability of the currency.

For investors, a strong dollar helps.

Romney's in a Sweet Spot if . . .

If the Supreme Court overthrows the individual mandate, doesn’t Mitt Romney say “I told you so” and emerge as the big political winner?

All along he’s been arguing that only states have mandate power, and that the federal government under the commerce clause, or any other law, is guilty of massive regulatory overreach with Obamacare.

While fending off criticism from Rick Santorum and others about the Massachusetts mandate, Romney has always said it was a state issue, not a federal one. And if the Supreme Court agrees, it would have to give the former governor a leg up in credibility with Republicans and the general public.

President Obama, meanwhile, would emerge as a big political loser. Obamacare was the central signature domestic economic plan for his administration. What else does he have to show for nearly three and a half years in office? An $800 billion stimulus plan that didn’t work? A tax on rich people? An assault on oil and gas companies?

Besides Obamacare, what can the president really point to as an accomplishment?

The other big winners in the event the mandate is overturned are business and the economy. Talk to almost any CEO and they’ll tell you that the tax-, regulatory-, and insurance-cost threats from Obamacare have stopped them from hiring. Or, if they have made new hires recently, they’ve gone a lot slower than would have been the case without Obamacare. Remember how many companies asked for Obamacare waivers this past year. That shows their distaste for the legislation.

Of course, there’s still the huge tax cliff coming early next year, when virtually the entire tax code is upended. But Obamacare, with all its tentacles, has been a huge growth impediment. The Supreme Court could remove that jobs barrier, not to speak of the potential fiscal bankruptcy suffered from the gigantic costs of new Obamacare entitlements.

Mitt Romney’s job in a post-Obamacare world is to show voters what his alternative would be. In a recent op-ed in USA Today, he begins to set this out: tax benefits for individuals purchasing insurance outside their workplace; more competition and consumer choice for insurance plans; medical-malpractice reform; interstate insurance options; and state-determined insurance protection for those with preexisting illnesses. All this is a good start. Rather than a government-run health-care reform, Romney is pushing a market-run reform, which has long been a Republican idea.

So we’ll see in a couple of months how the Supremes decide the Obamacare case. But Romney, the likely GOP nominee, is well positioned to take advantage of a scenario where the Obamacare federal takeover is rejected.

Ryan's Supply-Side 2012 Budget

There are a lot of really good things in Paul Ryan’s new budget, which is a stark contrast to the Obama budget. Ryan cuts spending by over $5 trillion, lowers the deficit by over $3 trillion, and brings the debt-to-GDP ratio down to 62 percent. All of these are ten-year totals.

Ryan also cuts back on small entitlements, block-granting them to the states. Then, of course, there’s the new and improved Medicare-reform plan.

But what I really like about this year’s Ryan budget is his singular emphasis on pro-growth, supply-side tax reform.

Working with Dave Camp, Ryan has laid out a great blueprint for Mitt Romney and the whole Republican party. In particular, while listening to the budget meister at a small luncheon for conservative journalists and think-tankers in Washington on Monday, what I heard again and again was an emphasis on economic growth.

This is not to say Ryan is not worried about spending, deficits, and debt, which of course he is. But his reform message to limit government really spends a lot of time on tax simplification, ending cronyist carve-outs and loopholes, and of course dropping the personal and corporate rates.

Growth solves a lot of problems. All those GDP ratios for spending, deficits, and debt look a lot better when the GDP denominator is rising rapidly. Not through inflation, but through new incentives to promote real growth.

Unfortunately, the first cut of the Ryan budget is based on CBO static estimates of growth and revenues. That is a budget-committee obligation. But I’m told that on Thursday we will get a different set of numbers based on dynamic scoring of lower tax-rate incentives. I’m guessing the growth difference is 3 percent static and 4 percent dynamic. Dropping tax rates as much as Ryan does, which reminds me of Reagan-era tax reform, could probably produce even more growth. Therefore, the budget could be balanced in a much shorter period of time with much lower debt ratios.

Let’s see what the second set of numbers brings.

One-on-One with Mitt Romney (Part I)

In my interview with Mitt Romney yesterday he stayed on message for growth, jobs, less debt, and smaller government. He reaffirmed that “he won’t set his hair on fire”, meaning no splashy off message statements to distract from his fundamental economic push. He acknowledged that the primaries have made him a much tougher, better candidate and more prepared to carry the fight to Obama.

He emphasized his 20 percent supply-side reduction in income tax rates. And interestingly, in response to my question, he said he would take a look at indexing the capital gains tax for inflation. That’s a pro-growth idea supply-siders have pushed for many years. I hope he finally adopts it.

One-on-One with Mitt Romney (Part 2)

A Good Man

Sincere condolences to the Breitbart family on the terrible passing of Andrew. He was a smart, innovative, path-breaking media leader. And a good man. His appearances on our show always sizzled. He broke so many important stories. At 43, he passed way too soon. A tragedy. May he rest in peace. God bless.

Mitt Gets the Supply-Side Approach

When former President George W. Bush cut taxes, including his 2003 reduction in tax rates on investment, he always referred to it as putting more money in people’s pockets. I don’t want to be unfair, because the 2003 tax cuts were his best policy move. But Bush was never a supply-sider. Putting more money in people’s pockets is a demand-side argument.

Contrast that with Mitt Romney’s tax-policy speech today at the Detroit Economic Club, where he touted his new across-the board 20 percent reduction in personal tax rates. The language is crucial: “By reducing the tax on the next dollar of income earned by all taxpayers, we will encourage hard work, risk-taking, and productivity by allowing Americans to keep more of what they earn.”

This is supply-side language. It is incentive language.

Many of us have been asking whether Romney understands the incentive model of growth. Namely, keeping more of what you earn, invest, or risk provides a bigger reward. And those rewards translate into a fresh tonic for economic growth.

Ronald Reagan understood this when he famously told people that he quit working as an actor because he only made about 10 cents on the extra dollar earned from the extra movie. Mitt Romney seems to understand this incentive model.

His tax-cut plan is not perfect. Instead of retaining all six brackets of the personal income tax, I wish there were only two brackets or maybe three for a modified flat tax. But it’s clear that Romney understands the incentive value of his 20 percent marginal rate cut. He is satisfactorily answering the question that I and others have posed about his understanding of the supply model.

Reward more and you’ll get more. It’s not just a one-time benefit of more cash. New tax incentives at the margin change economic behavior for the better.

I will have more to say on the Romney plan overall, and about how it contrasts hugely with Obama’s massive tax-rate hikes. But for now I am satisfied that Mitt gets the supply-side approach.