promise to find it just for you right here on "mad money." i'm jam krim cramer and i'll se tomorrow. hey, larry, what's topping your show tonight? we're on march for a 14,000 dow despite a lousy budget. good evening. i'm larry kudlow. this is "the kudlow report." the president unveils a class warfare and a tax the rich budget. layer on layer of tax hikes are piled on successful investors, banks, corporations, oil and gas all of which could slam down the economy. the bush tax cut, they'll be gone. 30%, the minimum tax for success and american? that will be added. virtually no spending restraint and no major entitlement reform. we're going broke and no one seems to want to do much about it, but maybe, just maybe, senator pat toomey can tell me what the risk fiscal path will be and he joins me live in just

a few moments. then there's sizzle story number two. italy, spain and portugal downgraded by moody's, but a greek bailout deal does boost stocks. the dow climbed 73 points on our long march toward 14,000, strength of the better economy. that's my card. first up tonight, cnbc's eamon javers joins me with the details. >> good evening, larry. the obama administration is saying now is not the time for austerity as the president unveiled his $3. billion budget for the fiscal year of 2013. take a look at some of the details of what's in that and you get a sense of where the president's coming from as he goes into this very delicate campaign starting with a 2013 estimated budget deficit of $901 billion. revenues will be up $1.5 trillion over ten years and the bush tax cuts, as you just said larry, those are set to expeer

under the president's plan at the end of 2012 and the buffett rule, a 30% tax on income of $1 million or over is also included in this proposal today and of course, the president has been invoking warren buffett a lot on the campaign trail and he did it again today as he unveiled this budget. >> you've heard me say it. warren buffett pays a lower tax rate than his secretary. >> that's not fair. it doesn't make sense at a time when we've got to pull together to get the country moving. >> larry, the key here in washington is this is largely a political document. nobody expects this to be enacted in the 2012 election year. this is an opportunity for the president to lay out to his base where he would take the government ideally if he had his way, but as we know, he's not likely to have his way here in town. >> many thanks. eamon javers, i appreciate it.

>> joining us with a business news exclusive we welcome back pennsylvania republican pat toomey. he does serve on the senate budget committee. i want to get your reaction to comments yesterday, white house of chief of staff on "meet the press." take a listen. >> the number of days that the senate democrats passed a budget is 1,019. can you just explain as a former budget director how do you fund the government when there is no budget? >> well, one of the things about the united states senate that i think the american people have realized is that it takes 60, not 50 votes to pass coming there has been republican opposition to anything that the democrats have tried to do. so it is a challenge in the united states senate. >> all right. senator team, i'm sure you know this, he's a former omb director under clinton and obama, for heaven's sakes. a budget reconciliation act

requires 51 vote, not 60 votes. i'll ask you what the are the chances even with 51 votes that we'll get a budget out of the senate? >> well, the more amazing thing that jack could say that, larry, thanks for having me on this evening is the fact that the democrats haven't even tried. they have announced, in effect, in fact they've announced they'll not even attempt to do a budget so if harry reed insists on refusing to carry out the statutory obligation and frankly, a matter of common decency that the federal government would perform a budget, then we'll have a budget, but i think it's outrageous. we should be debating this and this is fundamental about the direction of this country and our finances and to simply punt on this i think is an embarrassment. >> one of the things i want to ask you about from our own eamon javers, the political argument is this is no time for austerity spending cut, but i would ask

you, senator toomey, even if that were the case, even if that were the case why is this a time for austerity tax increases which, by the way, are greater than the spending cuts according to the word of keith hennessey and others? >> this is -- it makes no sense, larry. there are massive tax increases that can only be harmful to the economy. they're taking that money and spending it. the deficit next year will be bigger than the deficit next year and the president despite having acknowledged that the long-term fiscal problem is driven by health care programs and he refuses to po pose substantive change in this, it would be really bad for the economy if any of this were enacted. >> you have this whole string of taxes and the gains are going up to 15 to 24 and that includes boom care and that reverts to ordinary income from 15 to 40. the estate tax goes on 45%. the buffett's tax was 30% on

that and carried interest is targeted. oil and gas is targeted, banks are targeted. what is the economic growth logic? i thought there were two ways to balance the budget and move toward bounce. number one, restrain spending and number two, grow the economy so the revenues keep coming in. this looks like it misses on both counts. >> you know what's missing? every commission, the bowl simpson commission, when they looked at tax reform, what they said was simplify the code and broaden the base and lower marginal rates and they've gone off on capital formation and generally, they've acknowledged, and almost everybody gets that and this president is going in the exact opposite direction and now in the base, raising rates and punishing savings and investment. it can't possibly be good for the economy. >> so let me ask you about that. you say there's some consensus about simpson bowles. you yourself had a tax reform

plan for the super committee. you had democratic support, as i recall, but let me just ask you, is there any common ground for reform? for entitlement reform, particularly medicare and for tax reform that might do a lot of things and it might raise revenues by getting rid of deduction, but it might grow the economy. in other words, is there any common ground among democrats and republicans in your upper chamber? >> you know, i think there is some. there certainly is on the corporate tax side an acknowledgement that we need to simplify that tax code and lower the rates on the corporate side. there's stronger consensus there. on the individual side, unfortunately, it's become politicized. the president is trying to divide americans and he's trying to incite resentment. any argument to sechl li phi the code and reduce deductions and lower marginal rate, they just can't go there because the president has dragged them so

far to the left. it's discouraging, larry, but it's hard to see how we get tax reform done in this environment. >> what are you and some of the other budget, of coursal budget leaders will do? you know the public is up in arms. you know the public knows that america is moving more period greece for heaven's sakes. we know the entitlement, particularly medicare is on the road to bankruptcy. he called it a debt crisis and decline. we know that, the public is also very unhappy with congress, okay? >> right. >> i don't want to even be political. democrats, republicans, everybody is lumped in. what can you do, senator timy? what can you propose? what will come out of your own thinking and leadership? what can you tell people watching this tonight where laggerheads on taxes and spending and how do we prevent that? >> larry, i'm going to articulate an alternative view. i don't think we have to decline by any means.

this is the most predictable crisis in the world and we can avoid it. we still have time. so last year i introduced a budget with the house republicans passed the budget. the budget i used i bought us to balance without raising taxes and we need to offer specific alternative, it's fine to criticize the abdication of leadership, so i'm going to be working a budget that will show how we can reach a balance and how we can generate marginal rates and how we can inform the big, enteethment programs that -- it's no midwestry here and it's health care entitlement programs. if it's going to survive for another generation, we will have to change the architecture. they've been debated and recommended even by bipartisan

commissions. we need to put a spotlight on this and make it clear it voters that republicans are willing to do the forms to get on a fiscal path. >> i've had democrats on this show who were part of the gang of six who were sympathetic to simps simps simpson-bowles. what i know is american public and taxpayers and voters are just furious, and we have to take some action. i appreciate your time tonight for laying it out for us. i hope you can find come common ground, sir. >> thanks for having me, larry. coming up, greece shocks new life into stocks. how about that? that's a good story. they're 14,000 on the dow even though we're marching to nowhere on the budget. we have top notch money managers from the hartford. keith mccullough, and please don't forget, free market capitalism is the best path to prosperity. how about pro-growth tax reform and a sound dollar. we can do this. maybe there is common ground in

washington, maybe.

okay. good news. stocks rise to start the week on a high note. the dow gained 3 points. the s&p closed above 1350. much of that sparked by a good

greek austerity vote. they got it through. so let's talk about the road to dow 14,000, but one of our themes. bring in keith mccullough, founder of hegi risk management and bob froehlich. i'm a simple guy. i like to keep things as simple as possible, so jobless claims are falling to 358,000. that's a good, low number. that corroborate with the overall jobs improvement and the economic improvement which i think justifies at least an 8% rise in profit, if not better. so i'm saying for the year the stocks will run up the s&p 1450, the dow, 14,000. all i have to do is multiply 1.08 profits plus the current stock price and i'm in business. what's your take on that? too simple? tell me why that's wrong. >> it's not wrong at all. the fundamentals are there. >> right. >> and add to that equation, larry, think about all of the cash sitting on the balance sheets of these corporations.

when they started putting this money in motion, watch the multiplier. if m & a picks up or capital spending picks up or share buybacks and they start increasing dividends. so you're 100% correct on the fundamentals. i think what will make for a rocky road is it was great news from greece this morning, two weeks from now, three weeks from now you get negative news, so i think investors we'll go two steps forward. the fundamentals are great. >> the greek thing, sometimes all bets will be off when we get bad news out of greece. keith, it has been a risk on trade throughout this rally, but today no different. it was the cyclical growth stocks and we'll have dick bove on later and energy materials and so forth. they all did very well. the vix risk index is very low, keith, and i think the momentum can continue. what's your take? >> well, you know what i predict

is the sustainability of the rally and what i mean by that is the dollar can deflate inflation or the expectation of inflation and what oui had and you rightly pointed this out in the beginning. policy can create inflation in two different ways. it can create it fiscally and it will not do any good for the dollar. the dollar was down and as you said, the inflation trade was up. the other thing is obviously ben bernanke, and on the monetary side that's a dollar. >> it was flat on the day. i want to put that dollar chart back up on the full screen because i know you're sensitive to the dollar, and i think you should be sensitive to the dollar and really over the past six months we've had a pretty good dollar rally if we can get it back on the screen. this is the dollar index. the so-called dxy. it has lost a little ground. it lost a point, point and a half off the index. keith, i don't see a big dollar

break here, and i guess i would ask you, if greece goes down, the dollar will go up, but more on the point, why is that not correct? should people be fretful about the dollar right now? >> the dollar is exactly what you just pointed out. it signals the health of the country. you can be very bipartisan about this. reagan and clinton reflected on a strong dollar that was moving toward $100 on u.s. dollar index or higher. obviously with reagan you were rung at 140 and 160 on the dollar index. when you're talking about that point in the chart, you're talking about a very low level in the index and a highly correlated price of oil. if you go back to the '80s and '90s. the price of oil was not only in the $80 to $90 range. what we expect now is for

policies to inflate above obama and bernanke. that will be the sustainability. >> bob froehlich, would you sell stocks on the basis or worries about a falling dollar? >> i wouldn't larry. i think this is still a great buying opportunity and the fundamentals are absolutely positively too strong and i look at the dollar and the chart that you put up, if we can do that, have that kind of a rally with the dollar, with interest rates at zero and the budget deficit, the highest level since great depression, are you kidding me? those things are so negative for the dollar, we fix either one of those and you watch how strong our dollar gets. one thought i have is that it is possible as keith pointed out, the dollar in the last 10, 11 years has collapsed from 120 all of the way down to 70. now it's around 80. what if the u.s. economy is getting its feet back and what if u.s. fiscal policies are going to improve?

is it because of the change in the presidency or some political change or because congress comes together? that's a political question, dr. bob. what's your quick take on it? >> i think that's where we are. we had to see a change with the congressional electorate in 2010, with elected officials with a fiscal bent. we have to do something about it now, so we have to fix the fiscal side of it and the economy is starting to turn and that means eventually we'll move interest rates from zero and that's supportive for the dollar. we have the worst situation because you want rates to be up and they're down. you want the deficit to be down and it's up. once we turn that around you watch how fundamentally strong this dollar becomes. >> all right. one can only hope upon i know keith doesn't agree. keith mccullough, thanks very much. some breaking news, not a great one. moody's downgraded three european country, that being italy, spain and portugal, but the news was better on greece. the parliamentary -- all despite

the usual street roadway on thes and lawmakers did do their job and the least in the short run seemed to be saving the nation from immediate bankruptcy. let's see if it can last. let's go to our guest, harvard professor and economist jeffrey frankel. okay. it reads better. the parliament got its job done. both the center left party and the center right party participated in a lob sided vote to pass the package. will it last, jeffrey? that's the -- i don't know, $10 trillion question. will it last? >> well, larry, it's not going to be a smooth road from here, but it's a good step forward. you'll have these at different rounds. as unpopular as it is on the street. they have to do their part and the bankers and creditors have to do their part with the haircut and the servicing

obligations. >> do you think the political leadership of greece and it is a democracy so they will lead the voters, do you think they are, in pack, committed to the european union or committed on the euro. do you think that's the case? >> i think they are. they're committed to not driving themselves into the ground with austerity. it's the contradictions we see all over europe. >> do you think angela merkel will continue to guide greece? in other words, she is the iron lady. she is literally the iron lady chancellor of germany. if you ask me, she's rung the whole show. will she continue to have patience, but, you know, push tough love with greece. is that the way this will work out? >> yeah, but the equivalent contradiction with angela merkel, on one hand you'll keep greece in, et cetera. on the other hand, she says she has the fiscal council and these reforms to tighten up the fiscal criteria and make sure this never happens again and to make

sure the german taxpayers don't have to pay for it, so that's another contradiction. >> italy was downgraded today, and i want to ask you about the mario monti government in italy and they'll be facing similar deadlines and not quite as drastic as green tree, but still important. what's your quick take on the italian story? >> mario monti is as strong as papademos is in greece. the deficit situation is nowhere near as bad in italy. so i think things, look up there. i think the democrats are well. and i think mario in the ecb. all three came in in november and all three are doing a good job. >> harvard professor jeffrey frankel, we appreciate your time very much. next up on kudlow, a supreme court justice got attacked. we'll get the latest on his condition and the other news stories coming into the cnbc newsroom right after the break. please stay with us.

apple hits an important milestone only two others have done. jonathan dienst in the cnbc newsroom. >> apple is the world's large of the company in terms of market capitalization. a labors rights group has begun

auditing conditions where apple products are made. there have been reports of suicides among chinese workers. stephen breyer and his wife were robbed on the caribbean island. he took $1,000 in cash and justice breyer? his wife were not hurt. it looks like voting may have lost out on a $4 billion contract to sell to the brazilian military. reuters reports that the brazilian president is close to choosing france. federal regulators have proposed a $12 billion deal to buy motorola mobility. investing $580 million to expand its aviation business. the body of senger whitney houston is on the way to her native new jersey for her funeral later this week at the prudential center. meanwhile, there's been a backlash over reports that her record label and apple itunes

rose 60% in the hours after her death. new york knicks point guard jere jeremy lin has begun a cottage industry of his own. shares have skyrocketed in the last few days. merchandise with anything latin america in on it is flying off the shelves and tv ratings are up 70% not bad for a harvard economics graduate. we are getting late word from the westminster dog show that banana joe is an early winner at the event. you can watch the westminster dog show live at 9:00 p.m. here on cnbc and i'm pulling for the golden retriever. >> they're all great, but i'm pulling for the the seelyham terriers. >> new poll numbers out tonight show rick santorum sailing fast into mitt romney's michigan. michigan will be a major test for both canned theas, mitt and rick. we will tackle that next on the political trail.

>> wk to "the kudlow report." so rick santorum is rolling hard into the michigan primary on his

midwest momentum. he's edging out mitt in romney's second home state. check out these polls. aig has rhim leading by six. it's santorum 30, romney, 28. at least that's my take. cnbc contributor and national review political reporter robert costa spoke with mitt romney one-on-one and joins us now with the inside scoop. what was mitt's major point to you, bob costa? he had a good weekend in maine and won the cpac poll and he has a real challenge coming up in michigan with santorum hot on his heels. >> it was a fascinating conversation, larry, one because romney acknowledged his challenge. for over a year he's been running in many ways a general election campaign against the president, but in his conversation with national review he said he has to return to his record in massachusetts and remind conservatives that

he's one of them. so he hammered his record and hammered his conservative record in massachusetts and that was the theme. it wasn't so much policy ideas or looking ahead to november. it was recognizing that santorum was hot on his heels and he had to talk to them. >> how's that going to play in michigan? >> i hear you that he had a severely conservative speech. okay. i get that, but i'm not sure how severely conservative he's going to play in michigan running up against equally severely conservative rick santorum. romney's people are anxious because they did see that they did win by nine points in 2008 and right now they're running against a candidate in western pennsylvania and that blue color region is very similar to the democrats of michigan and you see the latest polls in michigan and santorum is surging. he's well organized in michigan and he knows he can't just coast. the big thing to watch is that

romney's super pac just made half a million dollars in michigan going up on the airw e airwaves so they're expecting a fight. >> i want to talk more about michigan and immaculate contraception. joining us now syndicated columnist mona charren. i want to stay with michigan for a minute. i think it's an underrated primary, soon to be highly rated because not only did mitt romney's father was the father and he's been talking about papa romney, but also on the other side rick santorum has an argument that he is reaching out to blue-collar workers that santorum is the blue collar guy, he's the blue collar supply sider and he wants to favor and boost manufacturing, mona. this is a big race so does george and mitt romney versus santorum in the blue collars. >> it's huge. if romney does not win michigan

by a significant margin, his status as front-runner, i think is going to be at an end. he must win this and he must win it decisively. >> you know, the argument that santorum makes that he's going to favor manufacturing, romney does have an answer for. he says if you do that, if you put into the tax code that you get an advantage because you're a manufacturer everybody suddenly becomes a manufacturer so he needs to make that argument, but further, he needs to do one other thing and this is critical. instead of talking about himself and his past and his record in massachusetts and his career as a businessman, he really needs to talk about the future and about what he'll do in the first 100 days and kind of a contract with the voters, if you will. >> i like that. i think that's an interesting point. jimmy, i want to bring you in. a, on the significance of michigan which we all agree is growing and b, what mona just said. maybe the republicans want to all be manufacturers.

maybe they want to abolish the corporate tax, maybe santorum has a leg up on that, jimmy. >> i think mona's right. if mitt romney does not win michigan all you're going to hear about the next day is talk of a disputed convention, a brecka brokered convention and i was jeb bush i would not answer my phone because they'll be going crazy and who will replace mitt romney? listen, i do not like the special break from manufacturing. i prefer just one low rate, but listen, these people can remember something from santorum's economic plan. you ask people about it and there's something they can latch on to, what do people remember from the 59-point mitt romney plan? >> i'm not so sure about that. i'm not so sure they're latching on to santorum's economic plan, i think he won in colorado, missouri and minnesota because he was the anti-romney and earn so conservative. everybody thought santorum's blue collar message would do well there. he stummeled in new hampshire

and didn't win the blue collar base in new hampshire. >> michigan is different than new hampshire. michigan has been at the heart of this crisis, not only did they have a housing crisis and the automotive crisis and the governor is bringing it back. next week the governor will endorse and i know bob has an idea of who he might endorse. >> if you look at the map, santorum's vickories have been in the industrial midwest, minnesota, iowa and miss oary. the question is will he add michigan to another notch on his belt. >> that's very important, and i just wonder, i can't poll this, i don't know, no one's done this, that's his string of states and what if he adds michigan, isn't there, mona charren, a blue-collar theme in there some place and even if santorum is going too far? many he's not. maybe he's saying, you know what? we should all pay taxes, you blue-collar workers and you're

trying to recover the detroit miracle. he was against the bailout and both he and romney against the bailout, but maybe santorum is on to something, mona. >> i'm not so sure that it's the blue collar appeal, larry. i think it's quite possible, if you consider that the turnout in all of the places where santorum has done well has been abysmal, then you might conclude that the republican primary voters are simply saying i don't care. there's not enough difference among you to motivate me to get to the polls just call me after the candidate and then i'll get excited after the convention. >> immaculate contraception. i want to weigh in on that. i'm going to assume that archbishop owen comes back from rome as the cardinal and he will continue to say it is time to rescind the contraception provisions of obama care. now what i want to ask you on the wave of that, i want everybody to get involved in

this really quick, will romney and santorum will they keep up the drumbeat to abolish obama care? what really needs to be abolished is obama care. how big and who wens on that issue? you first, jimmy p.? romney or santorum? who wins on that issue? >> i think right now rick santorum wins on this because it's the contraception piece of it. he's very comfortable talking about that and talking about rell ed rell edgeon. >> yes, it's about religious freedom, bob, but it is principally and primarily about obama care in terms of sheer, raw politics, bob costa. who will jump on that and does santorum have an advantage? >> i think santorum has seen real advantage and you see him going after romney. he wants to talk about everything that the massachusetts director except health care and that's a vulnerability. >> it really is, mona. it is about religious freedom

and there's no question. it's also about the commerce clause. it's about universal economic freedom. you and the government cannot tell me what to do, what to buy, what not to buy as well as how to worship and what morality. this is a huge issue, too. in michigan where there's a lot of evangelical, mona. i'll give you the last word. >> this is what you get when you elect democrats to this presidency and the congress. you get a huge government that will tell you everything about how you organize your life. what you can buy and who you must buy it from even if it violates the issues. >> this is the overriding issue for the republicans. all right. mona charren, i love it when you talk levi thin with me like that. >> jimmy, and bob cost a thank you all. quick tomorrowing note, tomorrow night, house budget chairman paul ryan will join me for his first tv interview responding to

the budget proposal. next up on kudlow, check out these financial, morgan, ubs, morgan, banks up today and we'll talk to dick bove in just a moment. he'll tell us all about his call on the bank stocks. i'm kudlow. stay with us. [ male announcer ] the draw of the past is a powerful thing. but we couldn't simply repeat history. we had to create it. introducing the 2013 lexus gs, with leading-edge safety technology, like available blind spot monitor... [ tires screech ] ...night view... and heads-up display. [ engine revving ] the all-new 2013 lexus gs. there's no going back.

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>> big bank rally. since early october, the s&p financial sector was up 25%. they were up again today. moi next guest says banks are ridiculously cheap, their balance sheets are extremely strong. joining me now is dick bove, famed bank analyst at rock securities. since greece news is better, we're not going have the global default and meltdown. banks did well. apart from that, will banks continue to rally? that's what i want to know. >> i think it is very leakly because if you take a look at the positive side which is starting to overwhelm the negative side. they're up 10.5% year over year. mortgage refinancing is increasing. there's been a surge in auto lending. there's been an increase in what we call guarantee loans which are fha guarantee loans and

student loans. so we're seeing a big increase in lending which is where the banks make their biggest profit. >> i want to get in with some of the overview stuff in a minute, but i want to ask you in your best bets. update us on your best bets, dick? >> i think bank of motorcycle has become a compelling vibe, because even if the stock were to triple from the current level it would go up from 8 to 24, that's still less than half of what it was when it was at 55 at the peak of the last cycle. if you double the price of citigroup, you're in a situation where the stock is still relatively low versus where it's been historically. there are companies like u.s. bancorp out there that are simply coining money hand over fist. >> is j.p. morgan still on your pfaff rid list? >> j.p. morgan is still one that i like the best because jamie dimon is clearly the best ceo in banking in the united states and good management drives good companies. it is, however, the bank that

has the biggest, if you will, risk in europe at the present time. >> a couple of quickies. if the economy continues to improve, dick, okay? the cyclical stocks have had a very good run. does that impact the bank stocks? in other words, you mentioned it, does it follow that the bank stocks are among the cyclical growers as long as the economy continues to perform reasonably well? >> that's absolutely true. there's no question about the fact that banks should be viewed as cyclical stocks no different than steel stocks because it's the same driver for a steel company which is a driver for a bank, and i think that, you know, to the degree that we see improving economy, we'll see improving bank stock prices. if the economy doesn't improve bank stock prices won't go up. >> fair enough because i thought that was your model. >> let's look at the darker side. the obama budget today has a $60 billion tax hike on banks. i don't know the details. i apologize, but i did pick that up and last week we had the

federal, state foreclosure business which slaps in some sense a $20 billion tax hike on banks. can they take any tax hike is there war on banks and does that affect their prices at some point? >> no question, and i think you'll see headline risk in this group for at least the next 12 months until the election is over because it is one of the issues in the election. in other words, banks are perceived to be evil and bankers are perceived to be evil and the president has set up this officen side of the attorney general's office that will doing nothing, but yes, that is a risk in these stocks and it is very real. >> all right. final one. is the federal reserve implicitly deferring war on banks because they've got a very, very flat yield curve. the difference between five-year paper and overnight paper is almost nothing. ten-year is almost nothing been

does that narrow spread and net interest cost and so forth, does that deter bank profits? >> there's no question about the fact that all of the things that you mentioned, that's the worst one. i think the federal reserve by lowering interest rates to a level where bank margins are under stress by flattening the yield curve to take out the federal reserve, and what the federal reserve is doing is the most damaging for the banks at the present time. fortunately, the banks do have volume. nor, this is going to be a will have up versus margin argument and if volume continues to rise because loans continue to grow, they'll offset what the fed has done, but the fed is killing the banks. >> on balance, in a word, you like the sector. >> oh, i think it's wonderful. i think it's very cheap and the stock should be bought. >> dick bove, ever so much, we appreciate the update. so, folks, go on. why are house republicans suddenly ready to lower the payroll tax without any spending

cuts as an offset? is this like a free lunch? isn't this country in enough deficit problems as it is? we'll cut the payroll tax, why don't we pay for it? it's your social security fund. we'll debate next up on kudlow. i look at her, and i just want to give her everything.

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>> all right. late word tonight. get this, republican leaders in the house say they're now willing to drop demands that any payroll tax cuts should be offset with spending cuts. what? who's going pay for all this? certainly not obama's budget. so let's talk about this. we can wander into the budget also. we have dean baker, co-director of the center for economic and policy research and steve moore, wall street journal editorial board. he's the author of the return to prosperity. steve moore, republicans were supposed to offset the payroll tax cuts with spending cuts and now they're giving up. now they're saying no. there's a free lunch here and i don't like this one darn bit. >> well, they are caving in on paying with the payroll tax cut, but they aren't caving in for paying for the unemployment insurance extension. in fact, lair, they're insisting on reforms to the program like

consisting that people are looking for jobs and drug testing and so on. i think the reason you've seen this kind of capitulation by the republicans is they got so stung right before christmas when the payroll tax cut got held up that they're just afraid to fight on this one right now and they refuse to -- the democrats weren't negotiating so they threw in the -- >> yeah, but this is so bad. dean baker, this is going to punch $160 billion additional deficit and debt hole. there is no economic growth impact from these payroll tax cuts, therefore, i score it in statec tomorrows, it should be paid for. >> larry, everyone else finds an economic growth impact. >> zero. zero. >> it strikes me that you have all these tax cuts you don't want to pay for. you want the bush tax cuts extended forever and you don't want to pay for that. i love drug testing. can we get drug testing for people that get tax refunds?

>> that's entirely different. >> that's entirely different. >> what's the difference? >> this is an important point. you don't have to get an unemployment benefit, why should we be feeding people's cocaine hand? >> it's the tax refund. >> it's your mono pep that's completely different. >> i pay unemployment tax. that's a requirement. >> the benefits that you get out are not at all related to the system. >> why shouldn't these transfer benefits be tested and why should they stipulate that you'll have to go to school and get training and get education? >> you do have to apply for work. >> baker, everything you're saying is a free lunch. if i pay insurance on my house and my house burns down i don't have to get drug tested, what is the story here? >> dean, this is a welfare program. >> it's not a welfare program. it's a tax, for two years that

aren't even working. >> it's not their fault legal an greenspan running the economy so no one can get a job. that wasn't their fault. you paid insurance and something bad happened, they let the bubble in housing go nuts. >> that's not their fault. >> if they're not going go out and get a job -- >> steve, we have 10 million jobs missing. 10 million jobs missing. >> i still don't -- i still think quite apart from this which is an interesting debate. i think the republicans are nuts not to call to pay for all these new benefit, but dean baker, what do you make about president obama's budget today? it seems like he wants to raise tax rates on the most successful earners, but he doesn't want any spending cuts. you want that? do you think that will help the economy grow? >> some spending cuts, but in the short term, we need to fuel this economy. we lost with the collapse of housing bubble. we lost 6 billion from the real estate construction and the

housing wealth, there's no one to replace that except the government. i might not like it. no one else, businesses aren't going to invest just because we want them to. >> dean, i wrote this in the editorial that we have tomorrow which is that if people like the way the economy has performed and the stimulus performed in the last three or four years then they'll love this budget because larry, it's stimulus two, it's redistributive of the tax increases and this is a pretty honest budget. president obama is saying look, if i'm reelected i'm raising taxes on capital gain, estate, payroll taxes and i'm raising everything to pay for another $350 billion on new spending for another infrastructure program and we just did that over the last four years. >> i wish there was much more, steve. i wish we had more for you to complain about. that's my biggest complaint. >> i'm talking about the fact that we have $5 trillion in debt that we still have an

unemployment rate well over 8% and it was economists leak you, dean, and others that said that the stimulus plan would per -- >> i said loudly and big enough. i said that on larry's show, not big enough. >> yeah, because you guys gave us such a big hole a trillion dollars wasn't enough to get us out. >> wow! that's frightening. >> you guys gave us the hole. it was george w. bush. i never voted for the guy. >> the budget was a 1.5% deficit, for heaven's sakes. >> what do you want? >> i think spending austerity is bad for the economy and tax hikes is good for the economy. even in keynesian terms i don't understand that. >> that will be further down the road and we're taxing people that don't spend that much. that's what you say, they complain about rich people. they're saving it and it doesn't affect things.

that's the whole keynesian story. >> give me some good old across the board tax reform. that's what we need. dean baker, thank you, as always, we appreciate your point of view. steve moore, good to see you. quick programming note, i interview house budget chair paul ryan. that's it for this evening's show. we'll see you tomorrow. forty years ago, he wasn't looking for financial advice. back then he had something more important to do. he wasn't focused on his future. but fortunately, somebody else was. at usaa we provide retirement planning for our military, veterans and their families. now more than ever, it's important to get financial advice from people who share your military values. for our free usaa retirement guide, call 877-242-usaa. i have copd. if you have it, you know how hard it can be to breathe and what that feels like. copd includes chronic bronchitis and emphysema.

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today is gonna be an important day for us. you ready? we wanna be our brother's keeper. what's number two we wanna do? bring it up to 90 decatherms. how bout ya, joe? let's go ahead and bring it online. attention on site, attention on site. now starting unit nine. some of the world's cleanest gas turbines are now powering some of america's biggest cities. siemens. answers.