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tv   The Kudlow Report  CNBC  January 14, 2010 7:00pm-8:00pm EST

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tonight on "the kudlow report," president obama announces his wrong-way bank tax that penalizes t.a.r.p. paying banks and recovery, it penalizes their lending, their shareholders, and their consumers. funny, he never mentions his favorite unaffordable morning-giving finance companies, fannie mae and freddie mac, who are costing taxpayers hundreds of billions of dollars, whose executives have $6 million pay packages and were at the center of the financial maelstrom and won't even be hit by this tax. and speaking of obama's political favoritism, a new health care deal exempts unions from the cadillac health insurance taxes until 2018. that's right. how do you feel about it? plus, an escalation of cyberspace espionage from china.
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that's the real story behind google's attempt to end censorship and defend human rights. bravo, google, but, unfortunately, the u.s. is losing this china war. kudlow 101 on the latest economic stats in the stock market. my question is, can the mini boom last with a tax wall coming? i'm not so sure. fasten your seat belts. "the kudlow report" begins right now. good evening, everyone. i'm larry kudlow. welcome back to "the kudlow report." we believe in free market capitalism. that is always the best path to prosperity. look, tonight's money politics message, as you might guess, mr. obama's misbegotten bank tax, it is exactly the wrong policy at exactly the wrong time and it will wind up backfiring across the board. now, it's not the end of the world, but at the margin, this tax punishes and penalizes the
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biggest banks that met their obligations by paying down t.a.r.p. with interest and providing taxpayers with a tidy profit on the stock warrants that they held. the president says he wants to stop risky bets. well, look, the way to do that is hire capital requirements and stricter limits to leverage broth borrowing. and of course, end the too big to fail problem. fdic insurance across the board would be a much better way of maintaining a safety net. instead, this 15 basis tax amounts to a tax on future lending, on shareholder equity value, and on consumers at bank services, who will pay the cost passed on by the banks. you see, corporations don't pay taxes, folks. people pay taxes. it's always passed along. and consider this, as dollar of bank capital generally works out
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to $10 of potential bank loans. the $90 billion tax, however, could therefore stop up to $1 trillion of future bank lending when credit demand picks up. that's how this works. the tax will slow down profits and capital and the diminished capital means fewer loans when loan demand picks up. this is exactly the reverse of what we want to grow the economy. now, consider this. investment banks who buy most of their money will feel the brunt of the tax. that's right. they don't have retail deposits. they go out on the open market and buy it. guess what, not surprisingly, the stocks of morgan stanley and goldman sachs fell today, because they are the wholesale investment banks, but the big retail banks, like the bank of america and jpmorgan, will be hit far less by this tax. and guess what, their stocks jumped up today, you know the stock market is smart and
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discerning. and incidentally, region banks rallied big-time, since they're going to be penalized muchless. meanwhile, on the unfairness category, the insurer, met life, which is now a bank holding company, and the regional hudson citibankcorp in new jersey, both of which never took a dime of t.a.r.p. money, they will be penalized by this tax, because they are going to qualify and that ain't fair. on the other hand, speaking of political favoritism, mortgage giants fannie and freddie will not pay the tax. hold on a second. mr. obama bashed excessive bonuses today. but fannie and freddie ceos could make $6 million in the next year or two. they're government-owned bureaucrats, they ought to be paid like gs-18s. and this whole tax is being used to finance the failed government takeovers of gm, gmac, fannie and freddie, and let's not
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forget the $75 billion failure of the so-called foreclosure loan modification program. to this day, no one know where is that $75 billion went. no one knows where it went, but the big banks are going to somehow have to finance it through a higher tax that is going to damage lending and stockholders and consumers. you see, mr. obama's crony politics rewards losers and penalizes winners. now, i want to make one point. as i've said on this show, i believe the largest banks who paid down t.a.r.p. this year really should not have taken bonuses. that was their mistake. as i've said, with the morgan stanley and goldman sachs and others who paid down t.a.r.p. in the middle of the year in june, they should have only gotten a half a year's bonus. and some of the other banks like bank of america and citi, who paid down t.a.r.p. at the end of the year should not have had any bonuses. if wall street were politically smarter, they would have foregone bonuses for all of
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2009. that's right. now they could have made it up to their employees later on. i know that would have been with a hardship on some of their families who were good people. bankers are not the problem. you know, our enemy is al qaeda, not banks. but i'm just saying wall street is guilty of bad political judgment and bad public relations judgment. they probably should have foregone their bonuses for the whole year. now, whether that would have mattered or not, i don't know. i will say this. listening to president obama today, this is sheer, raw, left-wing class warfare politics and it is another reason why the democrats are going to get clobbered come november. i want to tell you this. it won't work. voters know a smoked turkey when they see one. and remember, you can fool some of the people some of the time, but you can't fool all the people all the time. that is a political lesson. and i do not think with many massachusetts contest, when a republican may capture ted kennedy's seats and the tea
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party movement and what happened in virginia and what happened in new jersey, more left wing demagoguery, more favoritism towards fannie and freddie and the unions wha s and what not wt pay off at the polls for the democrats, but you and i will pay the higher tax costs. we will never tax our way into prosperity, nor will we ever tack our way into some kind of balanced budget, which is about as far away as saturn right now. all right, let's stop my rant and get some of the gory details of this bank tax from our chief washington correspondent, john harwood, who joins us from washington. good evening, john. you have a lot to report tonight. >> i do, larry. timothy geithner, the treasury secretary, sat down with me to talk about this bank tax. he's been under fire for a long time from left and right over bailouts, over bonuses. but we started off with this bank tax, and the treasury secretary refuted critics, including you, larry, who said this is either punishment or politics. >> we thought it was
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economically sensible, fair, good policy, legally necessary to propose now how to make sure that the costs of this are not born by people who are innocent victims of all the wreckage. >> as you know, you've been asked to testify before congress about some memos that came out. congressman issa released regarding aig and advice the new york fed gave to not disclose the full repayments to some counterparties of aig. now, i know you said or your spokesman have said that you were not involved in those memos. but did you agree with the advice in the memos? was it sound advice? >> i haven't looked at those memos, actually. i haven't involved in that decision. but i do think the fed -- the fed did disclose all that information, subsequently. i think they made the right information in disclosing it. >> is there something morally corrupt about wall street institutions and the people in them? >> i think what you're seeing happen across the financial system, what caused the crisis, what you see now happening is
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causing a huger damage. it's very hard for people to understand with unemployment at 10%. with millions of americans on food stamps, worst recession in almost a generation that you could see compensation practice produce such huge returns to people who were at the center of this mess. it is unexplicable. people can't understand why it's fair. >> but you understand it, because you know this culture. why is it happening? >> i don't -- i don't -- i don't it, really. i really don't understand it. but what it underscores is, why it is so important to make sure that we put in place tougher rules, the kind of reforms that will make sure we can wake up in the morning and tell the american people that we have done what is necessary to protect them from the risk of this happening again. >> is it pure greed? >> john, it's a complicated thing. i don't know how to explain it. i can't explain it. i don't understand it. >> there is some talk that to avoid economic damage, perhaps
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to avoid political damage, the administration might consider a temporary extension of the bush tax cuts on those highest incomes, which the president campaigned against. is that under consideration? >> no, it's not under consideration. that's not something we've contemplated and i don't think that's a necessary act. again, we are committed to make sure that we leave in place the tax cuts that benefit the vast majority of americans, so that we are, again, doing everything we can to help heal this economy, get people back to work, repair the extraordinary damage caused by this recession. >> have you ever considered in response to these calls resigning your job? >> that's a decision the president has to make. as long as i have a chance to help him do this, fix these problems, i'll be honored to do it. >> so, larry, it appears that despite the complaints from left and right, including larry kudlow, about his stewardship, he's not going anywhere and by saying, flatly, that the administration's not considering those -- extending those upper
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income bush tax cuts, i think that's a pretty clear signal that their view of your argument about the tax attack, larry, is bri bring it on, we're ready to have that fight. and i think that's clear from this episode. now, i need to update our viewers on another breaking development. and that is on health care. you alluded to it, larry, at the top of the show. the deal between the white house and labor on the threshold for that so-called cadillac tax. the senate is for this. it would tax high-tax plan. after 2018, the thresholds would be adjusted for gender and age. there's still many parts in flux of this health deal. it's premature to say that there's an overall agreement between the house and senate, but they're making a lot of progress. >> i regard that as political favoritism, but it is what it is, and i'm powerless over it. but i just want to tell you, there is an economic analyst and bank analyst that i know that favors this bank tax. that's not to say that dealing
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with the issues of too much leverage and risky trading and too big to fail aren't key issues. but this tax isn't the solution. that's my point. geithner didn't rebut that. he said it's economically sensible. why didn't he mention fannie and freddie. john, i would have preferred you asked him about fannie mae and freddie mac, because you want to talk about the center of the financial meltdown, those two agencies, john, hundreds of billions of dollars of taxpayer money, and their ceos are getting really, really incredible bonuses. they're going to make -- right now the minimum is $3 million per ceo, they may make $6 million per ceo. the administration and their allies in congress are coddling fannie and freddie. that's one of the things that infuriates me about this, my friend. >> well, that's certainly going to be a line of attack from those who were trying to bring this down in the banking industry and the republicans. and we'll have a fight, but i do think the house clearly will go along with this.
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i talked to a leadership aid today who said, there's no doubt our members will be with the president on this. there are always questions about the senate, because every so often you've got to have 60 votes for a provision of this kind. but i suspect at the end of the day, given public attitudes towards wall street, towards these institutions, towards bailouts and these bonuses, that they're going to be able to get it done. >> i don't know. we'll see. i think there's going to be a battle in the senate. moving ahead, will this bank tax backfire and is it politically a certainty? we have dave goodfriend, cohost of the sirius radio show left jab. we have brian gardner, senior vp and washington analyst for keith, bria, and woods, and mark clabraya, gentleman, welcome. thank you for parsing through this. let me start with brian gardner, brian. because i was reading some quotes of you in the paper. a, you're not so sure this is going to get through, as i understand it. >> i don't think it's going to get through, as is, larry. i think chances are still over
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50/50 that something passes. but today is the opening salvo in this debate. and i think we've seen that they'll put proposals out and let congress figure out the details later on. i think the house is going to up the ante a little bit, but as you alluded to, then the senate comes back and takes another look at this later on. you talked a little earlier about met life, hudson city. banks and institutions that clearly did not cause this crisis, and since they're being asked to now pay for the whole t.a.r.p. and related auto bailout, which makes absolutely no sense whatsoever -- >> and the foreclosure modification fiasco, and fannie and freddie fiasco, where they're getting $6 million of bonuses. i want to hear from my pal, david goodfriend on that. but before i do, brian, i want to ask you this. you're a bank analyst, just on analytic terms, i'm not talking politics here, but just on analytic terms, if we're worried about too much leverage and we're worried about risky
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trading, why would you slap a tax on unfunded liabilities, uncovered liabilities? that's the part i don't get. i can see fdic assessments, i can see leverage ratios, i can see capital requirements, but taxing? we've never used a tax system for this kind of approach in regulation. >> no, i agree, larry. and you could come up with different reasons of what they're trying to do here. this may be, you know, what they're trying to actually implement under people's noses is a permanent too big to fail tax. they are unhappy that the banks have not been lending enough, in their view, the administration's view. what this actually does is -- >> well, that's great, so let's penalize deposit costs, capital, profits, and future lending. >> i agree. but i think they're trying -- one of the angles they may be trying to play here, and i don't agree with it, is to take away the incentive to borrow wholesale and buy securities. that complicates things for the fed. because the fed is now trying to get out of its program of buying
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mortgage-backed securities, at the very time the administration could be coming in and making it more difficult for banks to buy securities. >> fair enough. >> and you have a interest rate problem. >> that's a good point. all i'm saying is you're better off using leverage ratios than taxes for those wholesale -- >> let me -- >> i want david goodfriend to come in here. because, david, look, do not give me tonight -- i'm in no mood, do not give me a political left-wing justification for this. this is an issue of standard economic and bank analysis, because those are the claims that obama is using, david. and i -- i don't care if george bush had proposed this, it would have been a terrible idea. it's not -- i'm not looking at this politically. i am saying to you, you are going to hurt the very people you think you're going to help. >> i promise not to go into any liberal lambasting, but i've got to stop the conservative clucking. because what we need to do is, first of all, take a look at the scale of what's being proposed. $90 billion over ten years,
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that's $9 billion a year in revenue. compare that to just one, just one investment bank, goldman sachs. what's their bonus pool this year? $10 billion, $16 billion? it dwarfs the size of this across the entire industry. so before you get everybody upset, let's talk about the scale. this is tiny. what is it designed to do? >> i have acknowledged that wall street made a big mistake regarding these bonuses. i said it tonight -- >> i congratulate you. >> i said it earlier in the week. i've written a column about it. that column whipped through the entire blogasphere. i said, if those banks were t.a.r.p. t.a.r.p.'d, they shouldn't get bonuses. wall street was politically stupid. look, they were probably politically stupid in the first place, because jamie dimon and lloyd blankfein and john mack, they backed obama. now they're getting paid back in spades. but that's not where i'm going tonight. i am saying to you, small businesses that want loans, if you raise by 15 basis points the deposit costs, they're not going to get the loans.
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>> why is it that this tax only applies to the liabilities and the balance sheet, not the non-fdic insured liabilities on the balance sheet? it's because, you said it earlier, we've got a too big to tail problem in this country. when someone is bailed out, this leads to moral hazard. you conservatives love moral hazard. >> but this is not the way to do it. >> this is a way to ensure -- >> mark, we have never used a tax system for these kind of regulatory issues, mark. i think this is a very important point. and there's a reason for that, is it not? >> i think this is a terrible precedent and you're singling out individual companies. i want to go back to the too big to fail, though. if this is perceived as a fee on debt, you're only reinforcing the perception of too big to fail. i think that's an important aspect of it. >> expand that last point. that's a key point, because that's where brother kogoodfrie is going. he think he's got me over a barrel. expand that last point.
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>> when we look at the fees that you pay for deposit insurance, a bank pays that, they know that when things go wrong, the fdic is going to cover the deposits. now, if this is looked at as a fee on unsecured debt, that fee is going to be looked at as, well, what are we paying for? we're paying for government guarantee. there's going to be this perception, even more so, if this fee is on that debt, that debt is -- >> you heard mark on that point. you're not ending too big to fail. he's saying you're continuing too big -- >> you're institutionalizing -- >> you're institutionalizing -- you want to end too big to fail, then create bankruptcy courts that will deal with banks who can fail. all right? that's the way to do it. and you can put a little temporary safety net underneath it, but that's the way to do it. but that's not what they're doing. they've got $4 trillion of bailout for too big to fail in this bank regulatory bill. $4 trillion, david! i agree with you about the problem, but not the solution. >> okay. but in the spirit of agreeing with you on something, larry, i
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will say that the pay to the government-sponsored enterpri enterprises, freddie mac and fannie mae -- >> what do you say about that? how do you defend that? >> i can't. >> god bless you. you're an honest guy. >> but i challenge you, larry, to say that those guys ought to be taxed too. in fact, why don't we say right on the air tonight, that anything over $1 million in compensation to those guys get taxed at the same rate -- would you support that? >> yeah -- i don't know if i want to -- day don't deserve bonuses. they should be paid like gs-18s, who peaks out, if not -- >> 170. >> i was going to say, 150, $175,000 a year. they are a wholly owned government subsidiary. that's all they are. and it's outrageous they should get that kind of money and be exempt. and what about fannie mae and freddie mac, what about the argument that the good banks, the healthy, recovering banks. all right, they paid off their t.a.r.p., they paid it off with interest, with warrants. they are basically being asked
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to finance the bad apples here. >> you're asking a tremendous question, larry, because actually, treasury's own report that they issued in december, which looks back at financials through end of september shows that bank t.a.r.p. has made money for the government. the banks are doing what they're supposed to, which is paying dividends, paying interest, paying the government back. the actual cost estimate of what the program would actually cost the government has come down by significant amounts. this is a moving target. in august, they said it's going to cost $340 billion. they're now saying it's going to cost $170 billion -- $120 billion. so it's a moving target. they don't even know how much it's going to cost. and to then come in and freeze the world at this point and say, you have to recompensate the government, after you've paid dividends, after you've paid your interest payments. after you've repaid t.a.r.p., pay for all the other bailout -- >> you've got to go back in and pay for these other turkeys,
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these other rotten apple apple. that's what's happening. >> wait a minute, larry, you cannot sit here and tell me that we have a financial system that exists in silos. we learned from this disaster that everything is interconnected. that when aig had insurance policies out, that that was affecting goldman sachs, morgan stanley, and all the rest. >> why is met life being brought into this? >> because they benefited. they benefited from your tax dollars and mine going to sustain this financial system. >> if you and president obama and the others, in some sense, you're sort of fingering the right problems. you have these totally mistaken solutions. mark, help brother goodfriend out, mark. corporations don't pay taxes, mark. people pay the corporate tax. >> or shareholders. >> just give us a quick lesson and then i've got to get out of here. >> so tax the bonuses! i don't know. >> this is going to passed on to
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either consumers and/or shareholders. the important thing about this getting passed on to shareholders is, one, it's the shareholders lose, lose from the big bonuses. so you're penalizing them twice. if you think these bonuses are too big, because these bonuses will not go back to the taxpayer, they would have gone to the shareholders. one the shareholder gets screwed over then and then we'll kick them when they're down by putting a tax on them. >> good lesson. i saw goodfriend taking notes. david goodfriend, i know you love you, buddy, as wrong-headed you are on this issue. thanks for helping. coming up for the rest of the kudlow rort, we're going to do kudlow 101 and the latest economic stats and the stock market. can the mini boom last? this tax wall is growing. every day, i hear and more about higher taxes. how can this boom last? you're watching cnbc. we are first in business worldwide.
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all right. it's time for some kudlow 101 on the economy and the stock market. let me say a couple of important things right at the top. number one, intel came out with blockbuster earnings after the bell, beat the street all over the place. and i think that's really going to help the stock market open tomorrow. all right, that's just me. i'm not a stock market expert. i leave that to my pal, jimmy cramer. those were very good numbers, and as i think folks know out there, technology has been a fabulous leader in this rally, going all the way back to really almost a year ago, early last march of 2009. so the intel thing is very good. now, today, we came in a little soft on retail sales, which actually fell in december. this is the first cut, no revisions. november was revised higher. you know, this one's going to be higher too, because we had good shopping at the mall, but i just want to note, you are still basically, if i remember how to work this machine, on a three-month trend basis, we're still running better than 5% on
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retail sales. fourth quarter consumer spending is going to be up, i don't know, 2% or 3%. let me go to the next chart. this one is -- no one ever talks about import prices, right, falling dollar, the prices you pay is always higher when the dollar goes down. and this is something. import prices, overall, were flat today, excluding fuel and oil, they were up again. import prices have been rising for six or seven months, pretty steadily. and you know what, you're looking at, now, over, let's see, this is almost 10%. let me see if i can do this right. almost 10% on year-on-year changes in total import prices, that is closely related to the consumer price index. it's not going to happen all at once, but this is why, by the way, i believe in king dollar, which should be linked to gold. now, this is retail sales, let me go forward, import prices. okay, the best stuff i saw today, big, booming business
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voi inventories, which is really going to contribute to a strong fourth quarter. i know the fourth quarter is over, the releases will come out in 10 or 12 days. that's going to help the economy. it might even help jobs, though my next guest is going to disagree with me. and finally, business sales. this is a great number. in the last three months, business sales, some of this is business to business, growing at 15.5% at an annual rate. this shows the recovery of business. it also shows the recovery of top-line sales revenues, which will help profits. this is a terribly important number and it is underrated. inventories are rising, sales are rising. retailing, a little sloppy on the first cut, but it will probably be revised higher. and i'm a little bit worried about rising import prices. i have to be worried. because the federal reserve believes that there is no inflation threat ever again in our lifetime and they don't give one hoot about the u.s. dollar. i do. someone else who does is joining us now. david goldman is a senior editor of "first things" magazine and
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he has a long history of accurate wall street forecasting. can i get to walk over to my pal goldman? okay. i'm going to go to david. david, now, you are very concerned about the economy. i don't think you deny that the fourth quarter is going to come in better. the big question, though, is looking forward. all right, can we sustain this 4% to 5% mini-boom that we're getting in the fourth quarter? what's your quick take? >> the answer is knono, larry. two-thirds of all new job creation the last 35 years comes from small business. most of the rest is government. small business, more than half of them are reporting cash flow problems. obama is killing small business the way stalin killed the coolox. >> tell me more. >> the banks have completely shut them off. obama is using the banks the way japan used the banks in the 1990s. they're buying massive amounts of treasuries, funding the
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government deficit. their business loans are down 20%. commercial paper is down by 50%. the -- >> some people say that small businesses are not demanding credit. their biggest problem is just a lack of sales. they don't need the credit. and remember, large corporations, large corporations have a huge cash surplus, right, they don't care about business lending right now. they create jobs. do large companies create jobs, ever? >> large companies do, but this is the creative destruction economy, where in the past, when we lost jobs from large companies, they never came back. it was small business that brought the jobs back. it's theoretically possible, but i don't know who's hiring. >> your point is? >> that unless small business kicks off, we don't get employment recovery. 22% employment, including long-term discouraged, 17.3, including short-term discouraged, that means people are hurting, and exactly as you indicated in the first segment, larry, obama is going to look at his poll numbers and start po t pointing the pitchforks towards
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wall street here. he's going to go on a left-wing -- >> kind of like hugo chavez pointing fingers at america. that's what some of the foreign guys do. but i've said in the show, i want to de-stimulate, stop the health care tax and regulations, stop the cap and trade, stop the tax hikes that are scheduled for 2011, unless a miracle comes. we're going to talk about that in the next segment. stop the bank tax. otherwise, all i hear from health care and payroll taxes on investment, income taxes, capital gains taxes, can't we stop this? this is the madness that i see. and i think, i don't want to put words in your mouth, but you're saying small businesses don't have a chance in this scenario. >> we need a massive tax cut for investment. we should get rid of all taxes on investment income. mike huckabee was talking about that in his campaign. that was his fair tax idea. get rid of all tax and investment income, shift the tax burden to consumption.
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create an investment -- >> why don't we have a small business tax holiday? just not make them pay anything -- they're not making any money anyway. give them another year. >> it's not a bad idea. >> why don't we abolish the corporate tax. just abolish the entire corporate tax. it's multiple taxation on income. >> absolutely. but to do that, we've got to get the democrats out of power, which is why things have got to t worse before day get better. >> worse before they get better. give me your quickie, 2010, this year, give me a forecast of gdp, just for the hell of it. >> 2.3%. on the low end. >> not going to be great, but it will be something. >> but with unemployment around or even slightly higher than current levels, an enormous pain. >> we'll have to leave it there. dave goldman, thank you very much. i have kind of tough, but i have a feeling, somewhat accurate scenario. coming up, president obama had a busy day attacking banks, but still had time to get cozy with the unions. they got a pass on the cadillac health tax until 2018.
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insurance tax, until 2018! cadillac insurance tax allows the idea to begin with, but they're getting special preferences and i don't lick it. here to discuss, we have reuters breaking news, money and politics columnist, jimmy pethokoukis, and first time on the show, i believe, peter cohn, tax reporter. peter cohn, let me go to you first. because you kind of gave jimmy p. some legs. jimmy p. comes on the show last night and says, there are some rumors off the hill that may be the entire bush tax cuts, instead of expiring next year, would be extended for a year or two. and then i pick up the newspaper this morning and "investors business daily" is quoting you and your publication that that is a possibility. john harwood, our man, asked timothy geithner about that, and geithner basically said, no way jose. so let me just ask you. is it possible that we could be in for a positive surprise and the bush tax cuts could be extended?
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>> well, watching that interview with timothy geithner, it makes you think that the trial balloon's been popped, that this is no longer a possibility. but i think it took about 24 hours for the treasury secretary to come out and make those comments. and he's probably making quite a few democrats on capitol hill happy. but i do think there was an internal debate within the administration. >> where was this -- i'm not asking -- i'm not asking for sources here, peter, but i do want to know, in geographic terms, okay, proximity terms, where were these rumors? you come from then national journal, which has a fine reputation, not to besmirch james pethokoukis, but i know jimmy p.'s heart is in the right place. and you are a totally objective reporter from, what is it called, "congress week." >> "congress daily." >> but where is this coming from? from capitol hill, can you tell me, were there any democrats of any substance thinking that maybe they need to stand behind
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the bush tax cuts for another year because they're going to get their keisters whooped on the special massachusetts election next week? >> there are definitely some democrats who are certainly eager to have all of the bush tax cuts extended. they don't have to run on raising taxes, which the republicans certainly will hit them on, even though this essentially will just be a vote -- they don't have to do anything and the bush tax cuts will lapse. but republicans would certainly hammer them for that, and there was a lot of nervousness about that. however, most of the democrats i've talked to are opposed to this idea. if this were to happen -- >> larry -- >> and you think geithner basically just deflated that balloon. that's your best guess, scott? >> that's what i believe. >> jimmy p., take a what can at the -- >> despite our esteemed treasury secretary's very lawyerly answer, they were 100% considering this. i have no doubt in my mind, and the pushback i got from the white house was mild at best on this issue. that's one. >> well, he may be -- you know, he may not -- that may not have
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been definitive, jimmy pethokoukis. he may be the last guy to know, because you and i both know, rahm emanuel runs the white house and the treasury department. i don't know what geithner knows. >> rahm emanuel, the treasury secretary in waiting. but two, there are other ideas they are considering. and two other ideas they're considering, which seemed to be crazy, because they're also considering cutting capital gains or extending those tax cuts is, one, raising capital gains as high as 28% for deficit reduction, and two, a 3% surtax on high incomes. those kinds of policies are also in the mix, which i would not like to see. >> that will deliver the elections to the republican. see, these guys have this view that the tea party movement and independents want higher taxes and higher spending. they do not. every poll indicates that. they are completely barking up the totally wrong tree, james. give me a quick one on this union deal. this is disgusting. the unions are being singled out for an exemption on the terrible health care cadillac insurance
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tax, i hate the tax, but the fact is, jimmy, they're actually going to give organized labor a break, an optout to 2018, how's that going to play around the country? >> it's good to be friends with the president. >> but, politically, this is a bloody disaster. >> they're a special interest group, that term is perfect, they are special. they're getting absolutely special treatment. i think, politically, this is absolutely terrible and there should be an uprising about this if they get a special deal cut for them, just like nebraska. >> peter cohn, now i've got the unions get a special deal on the cadillac tax, fannie and freddie get a special deal on the bank tax. >> i would say, a lot of democrats were concerned about that today. they were thinking a lot of middle class people, nonunion members, were going to get hit by this. >> of course, of course, of course! there, you win the nobel political prize for tonight. terrific stuff. peter, thank you for helping us very much. gjimmy p., as always. a quick programming note, tune
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into cnbc tomorrow morning when former president clinton will appear on "squawk box." we'll be here tomorrow at 7:00 a.m. right here on cnbc. as far as the cud kudlow report, bravo to google. google is for human rights, china is for cyberspace espionage. maybe losing that war. we're going to pick the story up right after this short break. as small businesses are busy reinventing the economy, small business owners have a lot of questions. can paperless billing get me paid faster? how can i keep my best employees? how can i bring down my insurance costs? and while at american express open we may not have all the answers, we know who does. other owners. that's why we're helping business owners connect.
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we've been quite clear that we're going to operate in china, we're going to abide by the law, but we're going to continue to make the same content available outside of china, no matter what happens inside china, as long as we get legitimate requests, documented by the chinese government, which we can explain to our customers. >> oh, i'm so disappointed in mr. steve ballmer for that statement. he should have stood shoulder to shoulder with google, and incidentally, another software competitor, information competitor, search competitor, yahoo! is standing shoulder to shoulder with google. and i say bravo for google for standing up for human rights. that's what they ought to be doing and being opposed to censorship. but the bigger story here may well be is china's escalation of
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cyberspace espionage. that's a war we may be losing. and i want to talk to peter novarro, university of california-i california-irvine business professor. and quenton harvey. >> happy new year, larry. >> quenton, you've been very tough and hard line on this. you're saying, this is a bigger story than google. >> larry, you nailed it on tuesday night on the google aspect, but as we learn more about this, over 30 american corporations were targeted by these cyberhackers. and what they're after are trade secrets, proprietary source code at google. this is economic warfare. and cyberattacks from china are not new. they have been attacking the pentagon and our defense establishment for years now. the u.s./china commission called them the biggest spies on the planet. what's new here is the extension of these cyberattacks into
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attacking american corporations. they've been engaged in industrial espionage in conventional terms for years. they steal a lot of stuff, come to trade shows. this is very, very different. and i ask you this, larry, think about this, if american corporations can't protect their percent bank accounts, their client lists, their trade secrets, their technology and their software from the chinese government and chinese enterprises, to me that's not kudlow free market capitalism. >> no, it isn't. you are right. you are right. i've got to tell you. i've got to get to quenton. before we lose this segment, i'm a free market guy, a free trade guy, and i've always argued we should do our best to have free trade or freer trade with china. but this is really pissing me off, this story, and it's very clear, it is human rights, but it's going beyond human rights. it sounds like china is stepping up the attacks. quenton, what do you think? >> larry, let me finger your economic soul here for a minute.
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there's two reasons why you want to be mad. one, before the approach was always sort of like the south africa approach we had in the '80s, con struckive engagement versus apartheid. the argument was, we can deal with them and change them. that's been the approach with china. it turns out you deal with them and they hack you and go into other partners and they're a lousy partner. >> so quentin, what are we going to do? i got my back up, your back is up, hillary clinton, what are we going to do? what is the state department, what is obama going to do? >> we're going to do what the sanctions guys did in south africa. we're going to put our values on the table too and say our values are as good as your values. our values are freedom and respecting -- >> we've got to do more than that. >> and if you can't play with that, we don't need you. >> peter novarro? >> these are economic acts of war.
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we've got to declare them as such. obama and clinton have got to say, we will not tolerate it, and if you keep doing it, there are going to be harsh sanctions. bottom line. >> i'll tell you, i'm a free trade guy, you're both going to come back. when we start back up, i'm going to ask quentin hardy, why is mr. steve ballmer of microsoft so wussy on this subject. it really annoyed me that clip. right now 1.2 million people are on sprint mobile broadband.
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we're back with peter novarro and quentin hardy. i'm so annoyed with steve ballmer of microsoft, who's come out, really against google's attempts to end censorship and help human rights. let me play this clip again. here's steve ballmer, ceo of microsoft. >> we've been quite clear we're going to operate in china, we're going to abide by the law, but continue to make the same content available outside of china, no matter what happens inside china, as long as we get legitimate requests documented by the chinese government, which we can explain to our customers. >> you know, quentin hardy, there's about 20 things wrong with the 30 words that this guy just said. this legitimate document crap,
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the legitimate document will say, just like it's been saying, we want censorship, your search engines have to be restricted and all the rest of it. look, serge brin grew up in the old soviet union, he has the story complete right. how the hell can ballmer say this. that is the most grotesque thing i've ever heard. he's just further out than the white house, is even sympathetic to google. >> larry, no one is 100% pure here. let's be realistic. google does sensor results having to do with the king in thailand, for example. the thai government asks to do that, they respect that. >> that's not even close. >> i agree. this is on a whole another level. no one is exempt. no one is going 100% >> china has the most oppressive internet in the world. >> i'm with that! but ballmer is a -- >> ballmer made a terrible mistake. he made a terrible mistake and i'm not going to let him forget
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it. he's come out on the wrong side of moral principles and humanity. peter novarro, we need to kick a little china butt. they're not as strong as they think they are. last word. five seconds. >> quentin, hang on. let me say this. >> last word. >> it's not just steve ballmer, it's always american executives, whether it's an intel or gm who go over to china to get into that market and give away our technology. >> all right. thank you. we'll be right back. y the hospi. this is not pay the doctor insurance. this is not major medical insurance. this is affordable-we-pay-cash -directly-to-you- fast-when-you're-sick -or-hurt-insurance. if all you know about us is... aflac! ...then you don't know quack. to find out all the ways aflac's got you covered, visit knowquack.com what are you doing...? calling chase sapphire, seeing if we have enough points to stay longer. now? you don't have enough time...
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i'll just say to an executive i admire, steve ballmer of microsoft, shame on you, mr. ballmer. you should be standing shoulder to shoulder with google serge britain in defense of human rights and completely against censorship. you should have stood shoulder to shoulder with google instead of separating yourself out. you send all the worst possible messages, mr. ballmer. change your tune for freedom. verizon makes a big deal about their maps, but when you look a little closer... their story begins to fall apart. see, at&t let's you talk on the phone while you surf the web. [ clattering ] verizon...doesn't. at&t has the most popular smartphones and the nation's fastest 3g network. verizon...doesn't. [ clattering ] glad that's cleared up. oh, boy.

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