growth. we're back in the driver's seat, the united states is. we got the best economic data, the clearest vision of how to be able to grow without a lot of inflation and that means you have to stay long u.s. stocks. do i think it's a fabulous time? obviously the beginning time of this year was a better time of this quarter. if we get weakness like the opening this morning, the weakness out of europe is buy. plain and simple. weakness out of europe means buy. i'm jim cramer. i'm see you tomorrow! >> larry, what do you have for us? >> the e pa gets slammed down over fracking. i'm larry kudlow. this is "the kudlow report." the president makes his first remarks on obamacare. but while on stage with canadian prime minister harper, he makes no mention of the keystone pipeline. and sizzle number two,

manufacturing numbers beat expectations, sending the market soaring on the first day of the new quarter. dow up 52, naz up 28, s&p up 11, the economists are now raising their gdp forecasts upwards. all that good news. plus mitt romney will win big in wisconsin tomorrow night marching towards the nomination, but he's got some problems and i'll tell you what they are. tonight i unveil larry's ten commandments of growth. number one, thou shalt lower taxes. >> we begin with the north american leader summit today, gas prices 3d.93. no mention of the oil pipelines. but there were words of obamacare turnovers.

john joins us with the highlights. good evening. >> it was an interesting day at the white house. you had the three amigos, prime minister harper of canada, the prime minister of mexico, as well president obama meeting. it was notable what was discussed and what wasn't. first of all, on obamacare, this is the first comments the president's made since the supreme court arguments over the possibility that the individual mandate would be struck down. the president said he doesn't expect that to happen but had a word of warning to the conservative community about what that would represent if it did. here's the president. >> i just remind conservative commentator that for years what we heard is the biggest problem on the bench was judicial activism or a lack of judicial restraint. an unintellected group of people would somehow overturn a duly constituted and passed law.

well, this is a good example and i'm pretty confident that this court will recognize that and not take that step. >> prime minister harper of canada showed some dexterity when he got a question reflecting mitt romney's criticism that president obama doesn't believe in american exceptionalism. he was asked whether u.s. leadership had declined on president obama's watch. here's what prime minister harper had to say. >> for canada, the united states is and always will be our closest neighbor, our greatest ally and our best friend. and i believe that american leadership is at all times great and indispensable for the world. >> there you have prime minister harper avoiding getting in the middle of a romney/obama argument the other issue that came up that was discussed in the press conference was the transpacific partnership, an attempt by the united states to create a trading block in asia as a counter to china. prime minister harper discussed that and the president got a question about obstacles to

canada joining that partnership because there are some issues regarding its dairy and poultry. here is what the president had to say. >> are there areas we would like to see some changes? of course. i'm sure canada will have some complaints directed at us and every member of the transpacific partnership eventually would have to make some modifications in order to accommodate the larger interest of growing the overall economy and expanding trade and ultimately jobs. >> and, larry, as you noted at the top, the keystone pipeline did not come up in that news conference. none of the leaders were asked about it. after doing reporting on it, it did come up briefly in the meetings between the leaders. safe to assume that it did. but prime minister harper understands that there is a political as well as regulatory process going on in the united states. he didn't want to inject himself into that either. >> i get that. probably a wise political move but somewhat puzzling. john, thank you very much.

here's another case of federal versus state powers to regulate the economy. this is much like obamacare. a federal court for the third time in as many months swatted the epa swatted the halt of trying to stop fracking. let's get some fracking facts if i get that right. some fracking facts from our frie friend. >> sources allege water contamination west of for the worth, texas, another setback in intense scrutiny on fracking. rules on emissions will be further delayed another two weeks. i want to give a quick refresher. this is an animation from oil drilling in the bakken. they execute a series of small explosions after they drill

down. they call it perforating, they make small fissures all the way throughout the well, every few week and a combination of water, sand and ceramics with chemicals are pushed into the well. those are the thousands of cracks propped open by them allowing oil and gas to flow up to the surface the concern here is water. the worry is over contamination of ground water. most energy companies i speak with say if that happens, the operator is at fault, not the process. it shouldn't happen. but there's also water used in the fracking itself. that's not usable on the back and often is stored underground. there's no technology to return the water to the system. that's why there's a fuss over chemicals used in fracking. companies are not arguing against regulation. the good operators want the regulation. they just don't want hasty decisions like a fracking moratorium that would absolutely, larry, frighten these companies. >> and they also want to

preserve the authority of state regulators who have the same environmental study. anyway, brian shactman, thank you very much. my pal jim cramer has been thinking about the epa and fracking. he said today's decision may point the way to a less adversarial process that could free up this energy sooner. jim? >> hey, larry. maybe the epa is beginning to recognize natural gas fracking isn't as dangerous to drinking water that many in the agency may have thought. that's my real take away from the epa's decision last week to back away from its slamming of range resources for allegedly polluting drinking water wells in texas. the epa has been on a wrecking crew for months again the process of fracking to bring up the surface difficult-to-drill shale oil and gas. the agent seemed determine to top fracking by prejudging the process. i felt as if the epa decided to take its marching orders from

gasland, a movie passing itself offs a documentary saying fracking causes drinking water to catch on fire. on friday the epa went back on a lawsuit and admitted there's no link between range's fracking and contamination. it needs to retest results of a fracking case brought in wyoming where the agency was quick to fault canada. could this be the beginning of a less adversarial, more thoughtful epa? i had fear the epa was on the verge. saying let stop fracking entirely until we know for certain how bad it is. it looks like the epa has recognized maybe it's not so bad after all. two cheers for an agency that let anti-fossil fuel ideology get in the way of rational

thinking. let's open the epa will leak positive findings about fracking as well as negative ones now that it recognizes the negatives weren't based on fact, just on bias. back to you, lawrence. >> many thanks to jim cramer. i agree with most of that. i agree with all of that. the white house apparently wants no keystone oil pipeline and the epa risks not wanting any fracking. the rest of the country meanwhile disagrees with these federal mistakes. let's talk about it. we have dan from the natural resources defense council and chairman of the texas pipeline commission. it really was the federal court that pinned epa's ears back saying that you at the state level can do your own safety and environmental regulation. wasn't that the key? it wasn't epa voluntarily. >> it was the key, larry. you're exactly right. >> and where do you go from here? in other words, what does this mean? has this become a states rights

issue, similarly in wyoming, similarly in pennsylvania? is this a major breakthrough that will keep epa out of the overregulation of fracking and oil and gas shale? >> floup thhopefully the epa wi defer to state regulators on these important issues. state regulators know better than the epa what the underground dejooeology is like and what the operators are doing. we understand the fracking process and we know that it' safe. i hope that the epa has changed their mind and will now let state who is are best equipped, like the texas railroad commission torq commission, to do this adequately. >> some say the epa is doing less science and more politics and now they're going to have to do to doing more science, less politics and more constitutionalism with states' rights. where do you come out on? >> look, larry, i don't think epa was ever about stopping

fracking. i think that epa believes and i certainly believe that americans shouldn't have to trade safe drinking water for energy. when it comes to drinking water, americans would rather be safe than sorry. what we need, as we have a system of federalism is a set of minimum, sensible federal safeguards that the industry should have to comply with around the country. you know, the gas industry has developed this fantastic technology. i mean, they can do amazing things. they should be able to comply with some basic safeguards to protect our drinking water. that's all we're asking for. if this industry is so clean, why do they continue to seek exemptions and sustain exemptions from the safe drinking water act and the clean air act and clean water act? it doesn't make sense. >> but you and your group said you know what's safe and what's not safe. other states have said the same

thing. it seems to me that's the key to this epa decision that, the onus, the regulation, goes back to the states which are closest to the project and have more expertise frankly. >> absolutely right, larry. there's never been a recorded case of fracking contaminating groundwater. states can take the lead in many of these areas. for example, texas recently passed the first disclosure regulation, which requires all of our operators to disclose all the chemical ingredients that go into fracking and it's posted on frack focus. we took the lead on that before the federal government ever thought of that. >> shouldn't that requirement of basic disclosure be applied everywhere in the country? that's why we have federal standard for things like this. nobody is saying the states don't have a role here. of course they do. >> i think the problem is -- i may not be an expert, you may know more about this than i do, but i think the epa has a real

agenda, too many bureaucrats with a real agenda and they want to stop any of these carbon or fossil fuels. they're doing it again on smog. today they postponed smog regulations on frack ing. maybe thinks listening to what people are saying throughout in the court. i don't know why the epa has to pass on local smog decisions regarding fracking? that sounds like regulatory overkill and a back doorway to stop fracking. that's my problem with the epa. they go way too far way too often. >> i don't think that's true when you look at the facts. oil and gas production are at an all-time record high. if the epa is out on some kind of agenda to stop fracking, they're doing a miserable job of it. i just don't think that's the case. the epa's job is to protect our health and welfare, to make sure that we have safe air to breathe and clean water to drink and that's what they're doing and that's what americans want epa to do. by overwhelming majorities

american want epa to be allowed to do its job of setting basic, life-saving standards that provide a bottom line playing field that's level across the country. >> let me get barry. quickly can you take the last word on this. >> absolutely. the federal government did not invent fracking. private enterprise invented fracking and it's resulted in this incredible bounty of oil and gas that we now have that makes our country more secure and more viable going forward. states know how to handle these issues and we do it in a way that doesn't create hysteria like the epa does when it swoops in and makes unfounded allegations. >> and this is one of the greatest technological and revolutionary developments probably in the history of energy going all the way back to john d. rockefeller in the 19th century. this is a remarkable thing that can help save america. thank you. thanks for coming on.

coming up on "kudlow," more reason for economic optimism. manufacturing beat estimates today. this economy could be stronger than you think. we'll ask former fed big wig mark olson about that. free market capitalism is always the best path to prosperity. give private states and entrepreneurs the benefit of the doubt, please. do you have anything for a headache...like excedrin... bayer aspirin... ohh, no no no. i'm not having a heart attack, it's my head.

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a good day for markets and the economy. the dow closed 53 points higher while the nasdaq finished in positive territory and the s&p 500 reached a new 52-week high. all ten s&p sectors logged gains led by materials and technology, two cyclical pro growth. now for economic sunshine, higher manufacturing numbers this morning from the ism, last week's surprising consumer spending data, all appearing to prompt economists to raise growth forecasts for at least the first quarter gdp. fill says the early word out on march auto sales out tomorrow is very strong. several economists thinks growth

may be strong enough to stop doing the twist and take qe3 off the table. mark olson, is chubby checker leaving the building? >> are we going to quit doing the twist? i think so. >> it ends in june, ends in june. >> it's completed in june. i suspect we may go through to the completion but at that point i don't think we're going to see any more adjustments. i never thought qe3 was on the table but i think there will be a focus first on the balance sheet and then on any other element of monetary policy. the first thing that's going to happen is it will quit avoiding the passive tightening. >> i don't know what that means, passive tightening. i think i know but our viewers may not know. >> passive tightening simply means that if you had simply let the principal run off for the balance sheet as they matured,

we would have reduced the size of the balance sheet, that would have been passive tightening. and every statement the fed has put out in the last year and a half has reminded us they will not let that happen. i think if we look and watch the next statement week may see an adjustment in that language. >> let me ask you a question, mark. with better economic numbers at the very least the glass is half full, okay, maybe even stronger. now, the fed has created so much money in recent years, i want to ask you about the inflation threat and i want to put this on the table also. the dollar is off 3% since mid january. it's off 8% since the financial crisis of 2008 and it's off 40% over the past decade. so i got stronger growth, massive money creation bit fed and a weak dollar. is there an inflation problem squirrelled in there someplace? >> a couple of points. first of all, with respect to inflation, that's one thing that the fed does exceptionally well,

monitor for inflationary pressure. can you bet right now the focus will even intensify. with respect to inflation as it brings about by an expanded money supply, certainly an expanded money supply will create inflation, all other things being equal. that's why i think it will be monitored very carefully. >> yeah, but is it coming? i'm asking you for your forecast and i want to add it still doesn't seem like the fed really cares about the dollar. so if you're printing too much money, chasing too few goods, milton friedman and letting the exchange value the dollar fall against other currencies, that's supply side classical. >> you can't manage monetary policy with respect to the other currencies because there's too much complexity. with all of the currencies of the the world. but what you can do is you can manage the money supply relative to inflationary pressure and that will be the focus. >> i don't see why you can't keep an eye on the fed's

currency index. i don't see why you can't keep an eye on gold. but, mark olson, those are grist for another mill for another evening. thank you for helping us tonight. >> my next guest is considered the most accurate forecaster of 2011. his current year end price target is set for 1167. today the s&p closed at 1419. let's hear what he has to say. adam parker is the u.s. equity strategist and partner at morgan stanley. the glass is half full, got off to a pretty good second quarter. you don't buy any of it. kneel why you're a bear. >> our year-nd target is a lot about what we think you're going to be looking at in 2013. a lot of our concerns are really in front of us. number one, i disagree a little

bit with the earlier speaker. i think more policy from the fed is on the table. our chief economist is calling for close to a 3 out of 4 chance you'll see more policy from the fed. i actually think the big bear case, larry, is the economy is good for couple months more and then is starts to soften and you don't have any helicopter at all until the election. >> let me follow up on that. if i economy does better than we think in the next few months, next quarter or two, interest rates will go up and i think that's because of market forces. i would say that's healthy, real interest rates. but you might not. is that one of the obstacles to the stock market? you've got about 20% drop. that's not small potatoes. >> i agree. my main call is the multiple you may for earnings. i think i'm more differentiated at least in the medium term on the multiple. why should i pay a higher multiple for earnings produced

where you have massive fiscal stimulus, incredibly accommodating monetary policy? why should i pay more than those earnings. >> debt to gdp worse than grease. that's very sond thinking. what are you building in for the tax hike that's supposed to come january 1st, 2013? we don't know that it will come but it right ou there for everybody to see. is it possible, adam that, stocks are rallying first half of the year and as they focus six months ahead they're going to fall down because they don't like big tax hikes? >> i saw a pretty high probability of that. i think that's part of our differentiatian. the bottom of estimates are for 13% earnings growth for 2013 and that equals $119 in s&p earnings. that's supposed to happen while we have this enormous fiscal cliff you eluded to the bush tax

holiday but there's 99 weeks of unemployment benefits, payroll tax deduction. line hart thinks about a 4% hit to gdp. unless the economy changes and you have the most polar rised house sin 1970. >> you're a mart guy, too, and you have a great track record. i think is your first time on our show and we appreciate. you're really looking for a 20% stock drop; is that correct? >> yes. our base is $103 in earnings next year, the consensus is 119. we they estimates are too high, in part because of the fiscal cliff you alluded to. >> if you're right, where does an investor run for the hills? where do you go? what's your favorite defensive investment? >> the sectors that will work the best in that environment will be health care, utilities,

high dividend yielding stocks. over the last equity, about 40% has been from dividends. i think that will be the right place to go. >> very sobering, we appreciate it. very honest. coming up on "kudlow" we are off to the races. the general election seems to have kicked into full gear now and they are pounding each other. washington out, mr. obama, mitt romney has a secret weapon and i'll they will you what it is next up on "kudlow." [ donovan ] i hit a wall.

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the idea that you would keep on doing the same thing over and over again, even though it's been proven not to work, that's a sign of madness. >> that's president obama once again with a vicious attack on republicans with the definition of insanity, or madness. but the president is sadly mistaken. his big government entitlements aside, he could do much to a european style stagnant economy. trouble with the president hereby likes johe likes jobs but doesn't want to reward the entrepreneurs or businesses who create them. joining me is ed gillespie. do you think his charge that the gop is madness? do you think mr. romney and the republicans can rebut that? >> i think very easily. to a certain extent the president is right.

if you keep amassing massive amount of debt, as he done, more than president bush created in all eight years of his presidency, keep putting mandates and regulations on the economy that are so excessive you're stifling job creation and implementing a health care bill that result in more people losing the insurance they had and results in premiums going up, i think he's right, if we keep doing those things, we'll keep getting the same results nap that is madness. >> swing state gal up poll, obama is up by 9 points. but there's a female gender gap opening up, 18 points, ed gillespie. what is the republican party going to do about that female gender gap? >> both parties have had a gender gap historically going back decades where republicans outperform with male voters and

democrats outperform with female voters. the importance is the size of the gap and we need to close that gap going into november. once we get out of the primary and have standard barer to carry the case against president obama's poll circumstance you'll see a lot of those women move toward the republican nominee. can i understand why a lot of women voters and a lot of men voters may be turned off by the negativity in the republican party primary. that's the nature of those primaries, but i think when there's a clear choice between president obama and his policies and the republican nominee, who i believe will be governor romney, and his policies, we'll fix that gap and narrow it. >> last one in the news today, there's also an hispanic voting gap for republicans. my thought is everybody wants to put senator marco rubio on the ticket as veep. he's one of my favorites. but it's not just putting him on. it's the policies. do the republicans need a makeover of their latino-type

policies in order to close it? they're going to have to get 35%, 45% of the hispanic vote. >> we had a drop off from 44% of the hispanic vote in for president bush in 2004 to 31% for mccain in 2008. that hurt us badly, not just in the popular vote but the electoral college. florida, nevada, new mexico, colorado, we've got to get up to 40%. with focus on policies, economic growth, education reform, values that a lot of hispanic voters share with the republican party, we can do that but it's going to take a focused effort. we really need to work to get the votes of americans of hispanic dissent. >> entrepreneurship being won important value. is that key? does there need to be a path to

legalization in there someplace regarding illegal immigrants? >> larry, i believe there should be a path to legalization. i'm not sure there hud be a path to citizenship. i think there are requirements we could put in place for people who have, you know, been law abiding citizens, have worked in their jobs, have contributed to their communities. but i also think we need to understand if they're here by virtue of having come here illegally and violated our laws, i'm not sure that should be rewarded with citizenship. >> senior republican strategist and old friend of mine ed gillespie, thanks for your time, sir. >> thank you for having me. >> you heard it, governor romney has a gender gap and will have trouble courting latinos. but he has a secret weapon. sarah, big story in politico that ann romney is the republican secret weapon that the obama campaign fears the

most, despite the gender gap, it's ann romney they're worried about. why is that? >> well, larry, i think she is mitt's secret weapon. she really puts a human face on the governor. she shows his softer side. talking often about their storybook marriage, about what a great father he is and i think most importantly she can talk about mitt romney's success in a way he cannot. she can connect his job creation in the private sector to what he will do as president. >> but, larry, it's not that secret. the politico story said it's romney's secret weapon. she's been out there on the campaign trail with him all year. i thif one of the reasons he's winning the primary is because ann has been such a constant presence on the trail. >> does she close the gender gap? ann romney's mess ang is economic growth and job creation, right? she's really focused laser like

on that. she's done good, very authentic, attractive and well spoken. >> she does bring out the softer side of romney but at the same time, she's really a discipline person on the trail. i've been impressed seeing her in ohio and elsewhere in wisconsin talking about economics, talking about that first and foremost when she speaks to women. she's winning over voters, she can woo the independent women, the sockers moms who are such a swing voter in all these states. >> sara fagan, who connecticuts with voters better, michelle obama or ann romney? >> i think they connect in different ways. michelle obama as a working woman, mother of young children has a special connection with women who are working and dealing with young children in school. ann romney has been in a long marriage, has five kids, a lot

of grand kids and is able to really sort of highlight what it's like to stick through tough times. she's someone who suffers from ms. she can talk about what that's like in the context of marriage. >> senator fagan, will you vote for michelle or ann? >> i will definitely be voting for ann. >> i'm shocked to hear that. >> thanks very much. coming up tomorrow, wisconsin republican senator ron johnson joins me to talk about the gop race. tonight up next, team obama breaking every free market commandment in my book. numb one says thou shalt not mandate. why are they mandating horses be allowed in stores and of where else? it doesn't make sense. this is $100,000.

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welcome back to "the kudlow report." all this week we're going to be exploring my ten commandments for economic growth. the first one, thou shalt not overregulate. right. overregulation a sure fire job

killer. it's like a tax to businesses and the economy. get a load of some of these regs. nine years to come up with regulations on which times of manure can be used for growing organic foods. endless medical coding regs. there are 36 different colds for snake bites, four for alligator bites, even a code for walking into a wall. my goodness. but one more, the obama administration now mandating that so-called service horses be allowed into stores and restaurants nationwide to help the blind. well, okay, i want to talk about that one. my question is whether are we going to stop this overregulation, which damages the economy? let's bring in an expert. utah republican congressman. the one thing that bothered me here, this service horse in the malls and the restaurants, is there a better way to help blind people? are the dogs the better way to

go? what's the objection against the service horse? >> well, we want to be as sympathetic as we can for people who need service animals, but there doesn't need to be a rule and regulation for everything. so as of march 15th, the obama administration said in order to comply with the american with disabilities act, now whether you're a restaurant, hotel, a pool, you have to allow service horses. and, look, i feel for somebody who is allergic to a dog and they need an alternative but there doesn't need to be a rule and regulation for everything in life. >> so the issue is the allergy to the seeing eye dog means you got to go to some kind of small horse. that's a tough one. >> now you have somebody in california who is being sued because the restaurant said we're not going to allow horses into the restaurant and now they're being sued and so it's just a little bit much. i feel for those people but, come on, we don't need a rule and raeg lace for any possible

scenario. >> what about manure for organic foods, medical coding regulations for snake bites, people walking into walls? this kind of regulatory crap i think had been ruled out. i thought the republicans had gotten that through. >> we're trying to. scott tipton out of colorado has done some good work on this. the raines act says any new rule that has an $100 million impact need approval by congress. under obamacare, the new coding rules, 36 different types of codes just for snake bites. >> is this one of those ones nobody knew what was in obamacare until they passed it? >> the famous nancy pelosi line. there's four different types of hang gliding accident. the idiot had an accident. we're trying to imsimplify

things not make things more complicated. >> do you think finally, jason, from your work and the work of others, that there is some kind of consensus in congress that overregulation is a huge tax on the economy and on jobs temperature does anyone get that? >> from the time barack obama took office until now there are more than 140,000 additional federal workers on the federal payroll. these are regulators. these are people who wake up every day in order to justify their lives and existence regulate. that's the problem. >> thanks for coming on again, we appreciate it. coming up up on "kudlow," pink slime. and more top stories coming into the cnbc newsroom.

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for more on that and breaking us in. >> vegas, baby. lavish party in vegas, might have got i don't know a top federal exec fired. martha johnson resigned today and two of her top deputies were fired amid reports the agency spend over $800,000 of taxpayer money for a conference. gsa says it is reviewing its accounting procedures. >> pink slime has consumed ground beef proserror afa foods. the company is filing for bankruptcy. oprah admits today she's made plenty mistakes with her own network. her network has blown through millions of dollars. she's laid off dozens of workers and canned rosie o'donnell's pricey talk show. >> and the u.s. marshall

service, the irs and dea are not saying why they are investigating this school. and an ohio man paid $14.40 at a print shop. turns out the print had picasso's real sick tur gnature and could be worth $6,000. that's a pretty tidy return on an investment. >> all right. i will ask my artist painter wife about all that. up next this evening, the big disconnect with president obama. he likes jobs. just doesn't seem to like job creators. how he is putting the country on the road to ruin. i unveil my next growth commandment. what could it possibly be? find out next. -o. just like e-ither. or ei-ther. or e-conomical. [ chuckling ] or ec-onomical. pa-tato, po-tato, huh? actually, it's to-mato, ta-mato. oh, that's right. [ laughs ] [ car door shuts ]

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today the wealthiest americans are paying taxes at one of the lowest rates in 50 years. warren buffett is paying a lower rate than his secretary. now some people call this class warfare but i think asking a billionaire to pay at least the same tax rate as his secretary is just common sense. >> the president arguing for the government entitlement society as i like to put it, versus a more applicable free market reward and success opportunity society, which is what we need. buffett shouldn't be paying a higher rate. his secretary ought to be paying

a lower tax rate. anyway next growth commandment, thou shalt seek lower taxes. it's time we throw the book on this golden gaffe. let's talk the buffett rule would our guests. you know, dan, i think that obama really loves jobs. he just doesn't like the investors and the entrepreneurs who create jobs. so he always wants to tax them. >> well, listen, the president has a philosophy and that is that he can take more tax dollars and invest that. >> caller: industries we he thinks are growth industries so he's trying to find ways to get new tax revenue. i find it interesting the joint commission on taxation scored the buffett rule and found it would collect $30 billion over the next 30 years. over that time we'll spend about $45 trillion. the implications of the buffett

rule is more about politics heading into the 2012 election. >> if you listen to dan's number, a lousy $30 billion is what might happen with this millionaire's tax, but you know they won't get a fraction of that because they'll dodge the tax. this is out of $40 trillion or $45 trillion of spending. jared, there is just symbolism and hyperbole and it is the wrong side of the debate. >> i think the important thing about the buffett rule, i think it's a very inelegant way of solving a real problems and it's the problem the president mentioned in part, that there is a fairness issue there. you guys might not griagree but think most people agree with him on that point. a more important point in terms of growth, larry, your compelling commandments here, the fact that we have such a complicated tax road frustrate with so many loopholes. and everybody, probably the three of us and a lot of other

people who have come through this show have argued that we should have a broader base. so the problem is that we favor particular types of income, like income from capital gains and dividends and that's why you have a warren buffett paying 15% or 17%. that's the problem. >> but, dan, we should favor investment taxes. we should favor lower tax rates and a flatter tax system for economic growth purposes. >> over wages, larry? >> no, i want to -- i want to flatten all these tax rates. i don't know how i'd work that through because you got the payroll tax. but i want to say, dan clifton -- the politicians who say let's tax the rich, seasoned a signal to middle-class taxpayers they are going to get taxed too, nobody believes tax the rich. thech see them get being taxed also, don't they? >> that's correct. that's what happened in the 1993 tax increase but middle-class

voters rebelled in the 1994 mid-term election. you don't get away with it as politically as possible. pee wasn people want to hear about lower government spending, pay a flax tax one time and pay it as a lower rate. we can't double tax investment because we'll get less of it. i'm all for wages and capital income being taxed at the same rate as long as that wage rate is lower in the 25% range. >> and pay roll tax, too. >> do the two of you agree we need a lot more revenue if we're going to get on a sustainable fiscal path? >> no. >> you don't. >> we're spending about 22% of gdp. we have to get that back down to historic levels. then we don't need the revenue. >> this is very revealing. i do believe that people agree with you that the reason the president wants to tax the rich people, quote unquote, which

will become the middle class is precisely because he wants higher taxes to finance an entitlement state. i think that's exactly right and i think you nailed it. >> it's not an entitlement state. >> it's going to be. >> it's simply a functional government. right now we're collecting 15% of gdp. if you believe based on aging demographics and environment and external threats this government can get by even 18% of reef knekne -- revenue, i think you're very misguided. we need more revenue in order to meet the needs. >> i would disagree with that. we need a more efficient way of collecting revenue. let's get rid of the tax deductions that favor one industry over another, lower those rates and reform our entitlements, particularly social security, medicare and the recently passed health care bill by getting those under control. >> it depend what is you mean by

reform but that's another discussion. >> it is another discussion. we're going to have to take off. i guess would i modify my second commandment, thou shalt need a flat tax rate and major entitlement reform. thank you. programming note for tomorrow, part it would have my ten commandments of growth and we cover free trade. that's it for tonight's show. thanks for watching. i'm larry kudlow. [ artis brown ] america is facing some tough challenges right now. two of the most important are energy security and economic growth. north america actually has one of the largest oil reserves in the world. a large part of that is oil sands. this resource has the ability to create hundreds of thousands of jobs. at our kearl project in canada, we'll be able to produce these oil sands with the same emissions as many other oils

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