an extreme and then by two, three, four shares. that's the best way to approach it. i'm jim cramer and i will see you tomorrow! hey, larry, what do you have for us tonight? >> all right, jimmy. the anti-investor buffett tax vote is under way. it's a very important tax. if it gets defeated, and i think it will, that's going to be good news. good evening, everyone. i'm larry kudlow. this is "the kudlow report." breaking news under way right now. the senate is still voting on the buff it tax. it looks like it's going to go down. i certainly hope it does because i think it's a dumb idea, nothing but a tax on capital gains and dividends and the entire stock market. by the way, you can't have capitalism without capital. risk capital powers the economy. why tax it? but listen, this whole buffett tax business is a political circus sideshow. the real issue, taxmageddon. a there are 5.3 trillion tax hike effective january 1st,

2013. this taxmageddon should be priority number one to avoid destroying the economy. so far, congress is not nearly anywheres getting to it. plus tonight an obama administration official pleads the fifth amendment in front of congress. and he's still on the payroll. this gsa official wouldn't tell congress what happened to almost a million dollars in taxpayer money that reportedly went to an over-the-top conference full of mind readers and clowns. my special guest tonight oversight chairman congressman darrell issa. he's trying to get to the bottom of it all. we begin this overening with the breaking news. the vote in the buffett tax is under way and cnbc's eamon javers joins us. good evening, what can you tell us? >> good evening, larry. some strange circumstances on capitol hill this evening. they opened this vote. most of the senators voted and finished voting as much as a half an hour ago, but they've held the vote open. we are told they are waiting for as many as six senators who have

still not voted yet. nonetheless, we are expecting here that those six senators will not be enough to make up the margin of difference here and that the buffett rule will go down to defeat this cloture motion, procedural motion will not pass according to our analysis as of where we stand right now. but it's not over until it's over. and, larry, republicans up on capitol hill today really blasted the buffett rule. they very much agree with you, larry. take a listen to senator mitch mcconnell earlier today. >> this entire debate has been very illuminating for a lot of folks. it's revealed a lot about this president. by wasting so much time on this political gimmick that even democrats admit won't solve our larger problems, it's shown the president is actually more interested in misleading people than he is in leading. >> very, very tough words from mcconnell there.

nonetheless, democrats, larry, they feel like they're going to get a political win here even if the buffett rule goes down to defeat this evening in the senate as it looks like it will. that's because they think they've got an issue they can take out under the campaign trail and they think that people are with them and not with the republicans, larry. >> do you know what the current vote tally is? waiting for six votes. six democratic votes, republican votes? where does it stand? >> we don't have the names of the six senators who have not yet voted, or i don't have them here. but it look like those six will not be enough to break the trend that we were expecting, larry. so i think we can predict with some confidence here that the buffett rule will be stopped dead in its tracks in the senate in the next couple of minutes, whenever these senators can get their way to the floor tonight. >> eamon javers, washington, d.c., thanks very much. all right. cnbc contributor jarrett bernstein, former head economist for vice president joe biden. we'll welcome senator john barrasso, republican from wyoming when mr. barrasso gets strapped in.

you know, jartd, we've gone round and round on this and probably will again. all i'm going to say to you is when you cut through all the fog about the buffett tax, this is a backdoor way of raising the capital gains and dividends tax, namely stock market taxes, from 15% to 30% among the most successful investors. and i don't see how that is going to help, a, the market, or b, the economy. >> look, it's a fair point. but i can explain to you how it's going to help. first of all, we need more revenue. second of all, if you look at the history of taxes on capital gains or dividends, there's times when they've been up in that 30% neighborhood and the statistical analysis very clear from the academic literature. i've done some of this myself. it shows that there's really no correlation between the investment and these marginal tax rates. what you tend to see, larry, is is when you start messing around with favorable tax rates, all of a sudden that kind of income

gets defined and you have tax lawyers working overtime to try to game the system. >> first of all,ly not let you simply say academic literature means there's no sensitivity of the capital to tax rates. i want to say that -- >> in these neighborhoods. in these neighborhoods. >> that is completely incorrect. >> no. >> 15% to 30% would be a doubling for somewheres between 200,000 and 400,000 investors. those are big numbers. and my point is a simple point. you know what, given this fragile state of the economy, we shouldn't be messing around with taxing investors or anybody putting risk into the economy. we should be sending a signal that says we want you to succeed, we want you to have the highest aftertax rate of return possible. that is what you all are missing on this. >> in fact, larry, that's what matters most. i totally agree with you. it is the rate of return. and when we've seen tax rates

prevail on capital of 20%, 25%, 30%, we have seen very row bust investment growth in the past. >> but it's the rate of change. the rate of change. what i'm saying is the change is so important, jared -- >> i agree but let me say one thing. >> 50% would take home 85 cents on the dollar. >> i give you that. >> at 30%, you take home 70. that's sometimes known as the hurdle rate or what you have to make for something to be economic. >> so -- >> given these hard times, you need the biggest risk/return cushion possible. >> wait, whoa, whoa. here's what happens when you go from 15 to 30 or 30 to 15. what you do is you find a lot of people change the timing of their realizations. the underlying structure of investment in the economy has everything to do with underlying growth rates weather the kind of opportunities investors see out there. when you start tweaking the rates like this, what you're going to find is exactly what we did find, sheltering of income and that's just something we

can't afford right now. >> i don't think -- you see, that's the thing. first of all, we've got some new information my producering are telling me. it's 51 independence and 45 for. >> a majority. >> ta that comes to -- right. 51 is against. >> oh, 51 against. >> a majority opposes the -- >> interesting. >> -- opposes the rate, the increase in the rate. >> interesting. >> that's very important, so this baby is not going to pass because i'm pretty sure you need 60 votes to get it through. regarding your other point, i don't believe, and i think many liberals disagree with me, and you disagree with me, and i get that, but the fact of the matter is a preference rate for capital gains, which is taxed twice, once as corporate income and a second time as capital gains, then a third time as estates, we've always had a preference rate. we've always tried to favor investment, and the only way to get rid of that is by lowering all the rates down to capital gains. what you all want to do, jared, is take that investment preference away. and i think that would be very

damaging to the stock market and the economy. >> first of all, larry, tons of capital income is passed through income. it doesn't get taxed on the corporate schedule. so let's be clear about that. >> but you know that -- >> some of it does. >> very important. the double tax is very important. >> well, by the way, you know, you want to talk double tax, we could talk about wages, which face a payroll tax, income tax, and a sales tax. >> i've always argued i'm a tax reformer. every dollar of income should be taxed once and only once. and the biggest thing here, here's the thing, maybe you and i can agree on this, to me, the buffett rule is a sideshow, jared. and we don't have senator barrasso yet -- >> it's a band-aid. it's a band-aid but a necessary band-aid. >> what matters, what matters is is this tax armageddon coming down the road with over $5 trillion of tax hikes, and for the life of me, jared, i don't know why every member, senate to house, democrat, republican, isn't focusing their efforts to

deal with this impending tax rate. >> you raise a great point and it's one that, right, we can't agree upon, a fiscal hit in january of 2013 is something this still fragile economy can't afford. you're right when you say that people like me, or me, anyway, want to end these preferential treatments. and if that means a lower rate and a broader base, we can talk about that. what disturbs me is the idea that you have people out there with tens and twenties of billions of income who are paying a 15% tax rate on their income. by the way, it disturbs the public, as well. >> i got to leave it, jared. look, we'll agree to disagree on the preference rate for capital gains. if you don't pay any income tax, i agree that's bad. that's what the alternative minimum tax is for in the first place. >> kind of broken. >> which needs reform. i'm told the senate has closed down the voting, so it's 51-45 against the buffett tax.

i say that's great, and the stock market will open up tomorrow on the strength of that. anyway, thank you very much. senator john barrasso will join us after the break. he had to vote and probably work the floor. coming up tomorrow evening, by the way, i'm going to be joined by the presumptive gop nominee mitt romney. next up this evening on "the kudlow report," the dow stocks shine better than expected retail sales, pretty good earnings report for citigroup, banks went up today. can we continue to count on the uptrend? don't forget, folks, free-market capitalism is the best path to prosperity. you can't have capitalism without capital. so why tax capital two and three times? i'm kudlow. we'll be right back. i have two products in front of you. we are going to start with product x.

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in case you're just joining us, the senate has voted down the buffett tax. it would raise the minimum tax on millionaires to 30%. we bring in senator john barrasso, republican from wyoming, just off the floor. welcome, senator. you're one of the leaders. is the buffett tax dead now in your view? >> well, it certainly is today. we voted to kill it. there is no place for this in terms of a growing economy.

this isn't something that is going to actually get anyone back to work. it's not anything that's going to ak chumgly help deal with the pain at the pump that americans are dealing with. it's not going to solve in any way our debt crisis or our deficit in spite of the president's promises. this is a bad idea. >> senator, the thing that really is foremost in my mind, i'm glad the buffett tax has been defeated, at least for the time being. but, sir, what about what's being called, you know, tax armageddon, taxmageddon? you've got a $5.3 trillion tax hike staring the economy right down the chute of the gun. january 1st, 2013. it will be an economy destroyer. to me, in the next six months, everybody in the senate and the house should be working to have tax reform and avoid taxmageddon. >> well, you're absolutely right. that's what we need, across the board tax reform, lowering the rates, getting rid of the loopholes that are there, and in that way tax revenue overall would go up but people

individually would be more prosperous, people would be back to work and there would be some certainty from the standpoint of business. instead of focusing on that sort of thing, the president has spent the last couple weeks traveling around the country with his distraction show in an effort under his guise of fairness to try to attack a certain group of individuals. that doesn't work in america. >> senator barrasso, let me ask you, are you okay with mitt romney, the presumptive nominee, saying that upper-end loopholes should be closed, mortgages for second homes, mortgage deductions disallowed, deductions for state and local income and property taxes disallowed? now, that is a brand of tax reform to go with this 20% tax cut. are you okay with getting rid of those deductions? >> well, i want across-the-board tax reform that gets rid of lots of loopholes and at the same time lowers the overall tax rate so that as nation we can become more productive, get people back

to work, focus on jobs and the economy, and the president has taken his eye way off that ball. >> wyoming senator john barrasso, thank you, sir. we appreciate it. >> thank you. >> congratulations on the floor vote. next on "the kudlow report," the dow stocks did shine on better-than-expected retail sales and a strong earnings report from citigroup. can we continue to count on this stock uptrend? laces? really? slip-on's the way to go. more people do that, security would be like -- there's no charge for the bag. thanks.

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much stronger-than. expected retail sales gain pushed stocks up over 70 points. i want to bring in cnbc's kelly evans, use her as much as possible before she goes to london. good evening, kelly. retail sales strong, the recovery is intact. it ain't perfect, but it's intact. >> here's what i would say to that, it's intact. the problem is it strong enough for the u.s. economy to stand on its own or power a global economy when we have concerns about what's happening in europe and other parts of the world? >> looks pretty good. even some of the banks. >> but the question is how much is this warm weather effect -- how much do we have going forward? >> i don't like my economists to be weathermen and weather women. here's one for you. besides retail sales, and i think we'll get pretty good manufacturing tomorrow, business loans to -- bank loans to business, they're up 15% year-on-year. >> yes. >> i have to view that as a recovery. >> they are, but i would almost spin it the other way, saying bank loans are 15% year-on-year. we had strong car sales in the first quarter and we're probably, if we're lucky, going

to get a 3% gdp growth figure for that quarter. >> yeah. about right. >> that's okay but abas good as it gets. >> i agree. >> what happens if we're more in the 2s -- >> i'm from the reagan recovery camp. we were booming 6%, 7%, 8%. >> are we ever going to see 4% growth? unfortunately it's either a case where if you want growth and stocks to keep going, if you want that top-line world, you have to have -- >> we will not see the fed but we will see 1550 on the s&p 500. >> in what, 25 years? >> coming up, a disgraced gsa official pleads the fifth from a los angeles conference. unbelievable. no accountability. darrell issa, who led the hearings, joins me next and gives us the lowdown. [ male announcer ] citi turns 200 this year.

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the general services administration sure wishes what happened in vegas stayed in veg vegas. congress is outraged over a lavish conference all on the taxpayers' dime. cnbc's hampton pearson joins was the details.

good evening. >> good evening, larry. bipartisan outrage dominated the house government reform and oversight committee hearing into a culture of wasteful spending inside the government services administration, including some $823,000 spent on a conference at a las vegas resort two years ago. >> disregarded one of the most basic tenets of government service -- it's not your money. it's the taxpayers' money. >> now, gsa executive jeffrey nealy, the prime organizer of that vegas conference, refused to testify, but his former boss was grilled for approving a $9,000 performance bonus for nealy after the initial findings of the vegas scandal were known to top administrators. and today was the first of four congressional hearings this week into the whole gsa scandal. larry, back over to you. >> all right. many thanks to hampton pearson for that report. joining us now is california

republican congressman darrell issa. he is the chairman of the government house oversight and reform committee. first of all, chairman issa, thank you on the day of your hearings, the opening hearings on this crazy gsa taxpayer rip-off. tell me what happens. your key witness, jeff nealy, organized the conference, takes the fifth, sir. what happens now? >> well, what happened for the rest of the hearing is really we lehnered a lot of what nealy had done but what we also lehnered, of course, is that nealy is still a federal employee and will take weeks or months to dismiss him. foley, many people saw giving the awards and making the jokes about delegate holmes norton is still there, still being paid. what we saw is an administrator who admitted her failures and told us that that was why she resigned. we met with the new administrator, acting administrator, and the first thing we did was said that this is somebody that's got to be

confirmed wp can't have just an acting in an agency that needs this much cleanup. the other thing that is critical is the white house was informed by one of their political appointees, mr. robertson, was informed back in may or early june, so this is something where the white house knew when they knew early on and 11 months later they're taking quick action. >> can i follow up on that? such a key point. all these videos come out and everybody's running for cover inside the administration. in fact, team obama now tries to blame the bush administration. okay. why do you think they waited 11 months? did they think they could cover this up? >> well, it's one of the amazing questions we never got fully answered by the inspector general. why did it take this long to come out with it. why is it nothing happened when the 60-day preliminary report happened. why were there no real changes, no changes of any substance during that 11 months that intervened. one of the things we made clear is on a bipartisan basis we

can't have inspector generals who not only -- they're dual hatted, work for the administration but also for congress. we need to have a heads up much earlier so the kinds of reforms that our committee is now anticipating doing, we've sent out letters to all the other major agencies. we could start out earlier. obviously, you know that right now everyone who's thought about a conference anywhere in america is now second guessing what the expenses are and whether they need that conference. and that's a good thing. that's something that should have happened three years ago or maybe many years before that. >> but what i gather, and from your work and senator coburn's work in the other body, conference mania has spread like wildfire. people talking about department of agriculture and hud, which mitt romney said today he might aboli abolish. people in whole conferences. but they're spending, freewheeling spending like they're private-sector company, only they're government companies, taxpayer companies. >> well, exactly. you know, some people make the joke act drunken sailors but the

fact sailors on shore leave use their own money, not the taxpayers' money. and clear hi this is something where at a time congress is paying for telecommuting and remote systems we're also paying for lavish parties. one of the little-known facts that came out in this oversight is we're also paying for executives to go out for ribbon cuttings even though there are people on the ground. we have to get out of the idea that five or six people have to go to hawaii for three, four, five days in advance to have a ten-minute ribbon cutting for a building. that runs up the cost of you and i, the federal workforce and these buildings that we have billions of dollars worth sitting idle. >> maybe this is a dumb question. why do we need gsa? governor romney is talking about abolishing agencies and so forth. why do we need gsa? why can't a real estate management company be run by the private sector? >> well, there's many parts to the gsa. one of the things they should do

and do well is the central bidding for things like pens and pencils or typewriters that can easily be bought off a schedule. we don't bid everything we buy in business, but if you're as big a purchaser as the federal government, you should bid it initially, get a deep discount, 20%, 30%, 40%, and people with buy off that schedule. that system can and save us a lot of money. but you're absolutely right in one area. the gsa wants to say they manage property well, but often what ends up happening is they simply don't know the true value, there is not a competitive bid early on, and by the time they digspoe of a piece of property, it's often demolished. >> you have a bunch of hearings coming up this week, house oversight chairman darrell issa. good luck on the hearings. hope you get to the bottom of it, sir. >> thank you. we will. >> we're just getting word, by the way, president obama has just responded to the senate voting down the buffett tax. he called the tax common sense