we're staying in rhythm here. every time the market gets hit and hit really badly we suddenly think the europeans are going to wake up and do something good. i say you sell the rip up, okay? so you can reposition and buy the good dividend yielders on the way down. only dividends that are safe, that are non-economic because the ones that are real economic, they're not holding. they're not holding. always a bull market somewhere. i promise to find it for you on "mad money." see you tomorrow. larry, what do you have for us? the second most important election in this country will be held within the next 24 hours in wisconsin. good evening, everyone. i'm larry kudlow. this is "the kudlow report." our top story tonight, the scott walker wisconsin recall election. it pits imperial government unions against a governor

defending a taxpayer revolt, all to prevent america from going bankrupt. mark my words, scott walker is going to win. america, fed up with government worker entitlements, mandatory union dues, pensions and benefits that are twice that of the private sector, all paid by taxpayers. we're there in wisconsin tonight. also this evening, team obama already scared of the potential loss in wisconsin, unleashes another attack ad on mitt romney's economic record as governor of massachusetts. this is ten years ago. well, guess what? it's june 4th, 2012. what about stalled jobs and the anemic recovery today? there is still no plan, no coherent obama response, to poor economic data that's coming in day by day. the president at this hour at three, count them, three fund-raisers. this is his new job. plus government overreach at

its worst and most insidious. at least two states want to put a big brother black box in your car to collect new taxes. we're going to tell you where and what can be done to stop it. first up, the country's first proxy election will be held tomorrow. big guns from both parties have descended on america's dairy land of wisconsin. cnbc's chief washington correspondent joins us live from madison, wisconsin tonight with all the details. good evening, john. >> reporter: good evening, larry. when you combine a strong partisan agenda with a polarized environment, the mix can be very combustible. president obama found that out in 2010. scott walker's finding it out in this recall election tomorrow. he cast the effort to survive in his first term in office as simply a difference in political philosophy. >> it's that personal. we just have very different views of the world. i think ultimately the best way to move forward is get government out of the way and put the power back in the hands of the people.

my opponent believes in more government as the answer. >> reporter: this is a fight over the power of public employee unions. his opponent is tom barrett, the mayor of milwaukee, who lost to scott walker two years ago, or in 2010. but tom barrett has been badly outspent again this time. he says he's coming back at the end. >> our tracking poll thursday/friday, that was over 800 samples, showed a one-vote difference. not one percentage point. one-vote difference. again, the energy that we feel on the ground, the number of people that we have throughout the entire state, leads us to be very, very optimistic. >> if you look at this average of polls for real clear politics.com, scott walker has held a seven-point lead going into the election tomorrow. that's one reason why president obama has kept his distance from this recall election. everybody's going to be looking at the results tomorrow, larry, as a sign of whether the

republican rebound in the midwest is real, or whether they could threaten president obama in a state the democrats have won six times before. >> just a quickie, on that very last point, do you reckon now from what you know that wisconsin is going to be in play in november? >> reporter: yes. i think there's a very good chance it's going to be in play. you have to regard president obama as a favorite again because democrats have won it six times in a row. but if scott walker survives, that is a sign that the republican base is energized and able to protect him under a serious threat from the public employee unions and the organizing they've done, so i think there is a distinct possibility that this state will be in play. >> thanks very much, john harwood. we appreciate the update. the obama campaign's already bracing for defeat in tomorrow's recall election, but why hasn't the president campaigned in wisconsin to help with the get out the vote effort? governor walker thinks it's all

about november and i agree. take a listen. >> i think it's interesting, two years ago the president came in for our opponent, he's not here now. on friday, he made three stops in the twin cities, to my now understanding and three stops in chicago. kind of hard to argue you weren't nearby. if you're the president or any other candidate who's going to be on the ballot in november, that leaves a lot of questions as to what that means in terms of coming in here and trying to get close as well. >> all right. we have jim dean, chairman of democracy for america. you recognize him as former vermont governor howard dean's own brother. also with us tonight, cnbc contributor robert costa of the national review. welcome back. why do you think this is such a pivotal election? why do you think all eyes around the country are on this election? >> because scott walker's a low profile leader, elected in 2010. he promised to reform wisconsin, get the fiscal house in order, curb collective bargaining and

guess what, in his first month in office, winter 2011, he did it. he shocked the public sector unions. this election is important for every single governor across the country who is trying to curb collective bargaining, trying to get their state governments having a surplus, and they're looking to scott walker. if he can beat the unions, a lot of other governors may take them on. >> we're waiting for jim dean to come on. is this a taxpayer revolt? is this a tea party revolt? i know scott walker was the leader in that in 2010. is he still? is that what's coming out? let us end the entitlement state as run by the public unions and financed by ordinary taxpayers who don't like it one bit? tea party, robert costa, once again, will it strike? >> it's already striking, larry. i just spoke with governor walker over the weekend, spent a lot of time with him on the campaign trail. he kept telling me about the silent majority that's across wisconsin, outside of that liberal hotbed of madison, the state capital. you have a lot of people who are

revolting, who are sick of the public sector unions getting these outrageous benefits and they want to see the governor do something about it. walker did, and the surprise of this recall election is that walker's reforms are popular. they're above 50% in the polls. walker's not a chris christie type, out there throwing rhetorical punches. it comes down to his policies being popular, not just the man. >> all right. is jim dean strapped in yet? good. jim dean, thank you for coming on. >> thanks, larry. >> your brother, howard's a good man. i want to ask you this. one of the things that baffles me. the whole world is watching this election, robert costa and everybody else has described. it's a pivotal election for all the reasons related to unions and entitlements and taxpayers but here's what i don't get. president obama in chicago. president obama in minnesota. it's just a hop, skip and a jump. why didn't he come into wisconsin? why didn't he help out tom barrett? why didn't he make the case for the public service unions? where was or is obama?

>> well, larry, i think this is a non-issue, really. i don't know why president obama did what he did. i don't travel in those circles. but honestly, this is not about president obama. this is about wisconsin and as far as the why of it, i don't think you would have seen president clinton here or governor o'malley or any other folks from around the country coming in here to support the recall effort if they didn't think this was a close election which it very much is. >> go ahead, bob costa. >> where was the president? so he's in minnesota, a little skip from marine one, could have came. look, obama sees the real numbers happening. george w. bush almost won wisconsin in 2000 and 2004. obama wins it by double digits in 2008 but knows this state is not just purple, it's probably trending toward being a red state in 2012 because walker continues to sustain his popularity and obama, i think this says a lot about his leadership. listen on wednesday morning, i respect mr. dean, but i think

people like mr. dean on wednesday, should tom barrett lose this election are going to start really raising their eyebrows at the president, saying why wasn't he here. this was a critical election for big labor which is a key democratic constituency and the president just didn't show up. >> jim dean, let me ask you this question. go ahead. answer bob costa. sorry. >> look, this is not about president obama. this is about a governor who is under investigation, who has passed anti-labor legislation, anti-women legislation, anti-beer and anti-deer hunting legislation. if that's not enough to get a recall going in wisconsin, i don't know what it is. >> he's not under investigation, mr. dean. his former colleagues -- >> he is under investigation. >> no, he's not under investigation. he has denied being under investigation. this has been an issue in the race where he's been connected to this john doe investigation in milwaukee and you're right, his former aide is under criminal investigation. walker himself is not under criminal investigation. >> you know, jim dean, i'm reading reports where he's actually said, has alluded to

the fact he is but keep going. >> you know these are not the issues. this is just smokescreen by mr. barrett. look, the issue is union power. curbing public union power. you know it, i know it, bob costa knows it, the whole world knows it. i want to ask you your opinion, okay, you're part of this union movement. why is it that half the membership of afsme has left, dropped out, as soon as the union dues were made voluntary, not mandatory, half the membership in the last year just dropped out of the state and local unions. that tells me they're probably going to drop out of the democratic column also. >> well, i would caution you on that, larry. 30% of union members in ohio used to vote republican. that was until last year, when governor kasich tried to pass legislation limiting collective bargaining there. honestly, the labor movement here has always been historically strong. they're fighting hard, there are a lot of other issues in this thing but i might add one of the

biggest ones is about governance. every state of the union is going through budget problems right now, and they're solving those problems because unions are coming to the table and making concessions and negotiating and making the deals that have to be made to resolve these budget crises. not here in wisconsin, because we have a governor that won't govern unless he gets his way 100% of the time all the time. >> robert costa, give you the last word on this one. isn't it precisely because walker's reforms have balanced the budget without raising taxes and have saved the localities a lot of money, bob costa, isn't that why walker's going to win tomorrow going away? >> well, jobs are growing in wisconsin. you see the state has a surplus, property taxes are down, and i think the biggest thing is look at how people vote with their feet. people are leaving the unions. the public sector unions, because they don't have to have those mandatory fees going to the public sector union leaders anymore, so the state culture is changing and so has the state economy. i think it will be in walker's column tomorrow. maybe a little closer than republicans would like to see

but it will be a walker win. >> thank you very much. i got to leave it there. jim dean, thank you for coming on. i hope you will return. robert costa, great stuff as always. coming up on "kudlow" bad news and a surprise decline in factory orders and shipments. is that telling us the spring stall could become a summer stall as well? we will do some market work when we come back. don't forget, wisconsin, key point, free market capitalism, it's the best path to prosperity. give taxpayers liberation in wisconsin.

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declining factory orders and shipments indicating new business weakness, all that sent stocks lower initially, but a late day rally did turn the markets around. the dow finished only 17 points lower on the day. that's well off the day low. the nas and s & p 500 both eked out small gains to finish in the green. but first, where can investors find returns in this volatile market? cnbc's on the hunt for you. good evening, kayla. >> invest ors are pouring money back into high yield or junk bonds as they prepare for a long and winding low interest rate environment. the u.s. corporate high yield index up 10.5% in just the last

month, though it remains down on the year. global uncertainty and volatility is pushing yields to an average of 8%, the first time since december. although yields are going up, strategists say it's not safe to play all credit ratings so why some investors by etfs, perhaps the best way to get in is through quote, rising stars like ford. a double d credit until two weeks ago, you can make good yields on this rising star and sell above 100 cents on the dollar. bill gross, one person who got in on that trade. similar low risk names with high volume to trade, cit group, hca and charter communications, and investors are buying debt that matures soon because they don't want to hang on to it and there's a buyer strike for thinly traded lower credits. right now, it seems no one has a stomach for that much risk. larry? >> many thanks, kayla. now let's do some stock

market work. joining me is president and ceo of nicklas and company, a massive bull. also jim urio, director of tjm institutional services. in your notes, you say 1600, 1600 s & p, eclipsed today at 1278. we saw some more weakness in business factory orders and shipments and of course, the lousy unemployment report. ron, i'm all for it but you got to tell me how to get from here to there, 1600. >> look, first of all, i don't believe in the mayan 2012 end of the world deflationary collapse people seem to be thinking about. the european crisis will get resolved. but unfortunately, it's only going to get resolved after policy makers make every conceivable wrong decision but they will get the right decision and simply, the risk premium, the ten year at 1.5% and

equities yielding nearly over 8%, that risk premium, nearly 700 basis points, will narrow and it's going to narrow in the favor of equities. >> all right. you heard that, jim. i want to get your response. i just want to say one thing. i'm a strong dollar guy but the rapid rise in the dollar the last couple months with the decline in the euro kind of looks like it is imparting deflationary pressures on commodities. we like lower energy but maybe it's a sign of front edge of recession, jim. that troubles me a bit. >> remember, there's two kinds of dollar appreciation and this is the one where it looks like people are just hiding, looking for cover, and that's the one that i don't like. if people are investing in the dollar because we represented the best global opportunity, then that would be great and i believe in the fall, that's going to come a time but right now, things don't look as good to me. the one thing i disagree with ron with is that it doesn't seem like europe's giving us any reason to think they're going to make a rational and come to the right decision.

to me it still seems there's a solid possibility for a calamitous end there. i want to be short, mildly short the stock market because there still is one reason to not be all in on the short side and that is fed policy decisions, particularly a coordinated central bank decision -- >> ron, it didn't sound to me like jim is banking on a 1600 s & p. >> well, no. i didn't say 1600, i say that you can have -- you are going to have a narrowing of the risk premium. look, larry, you're going to invest 1.5% for ten years with the expected inflation rate at 2.2%, at least that's the way -- this doesn't make any sense. you've got a lot of people that are expecting a very bad ending to europe. i do not believe that the europeans are going to be crazy and let their economies collapse. >> what about the possibility, all right, just -- it's now less distant than we thought of a more serious problem with the u.s. economy. i mean, the numbers are coming

in on the anemic side and i think everybody was a little shaken up by the drop in factory orders and shipments, ron. maybe it's the u.s. economy that the stock market is talking about with this big correction. >> i think the u.s. economy, sure, it's sort of a rehab economy, but it is growing, larry. in europe, these conflicts used to be resolved at the tip of a bayonette. they're now trying to be resolved at the tip of a fountain pen. it takes a little bit longer, larry, but look, they're going to get to the right answer. when they do and that bell rings and you have a policy response, the equity market is going to go higher. >> jim, here's my problem, though. we're talking about the factory orders and that's coming on top of awful employment data. to me there's no question that we're heading in the wrong direction. whether that's a two month or four month thing, that's fine, i might agree with ron, i might say 1400 by the end of the year once we get traction. but for right now, things look sloppy to me. >> even with the blood on the streets, jim, even with this

correction, it's been a bloody correction, you're not nibbling, you're not putting your little toe in. >> no. you know what i did nibble in a little today? i bought some calls in oil. i don't want to bring the fed into this, too, but that could be disproportionately affected by any sort of fed decision. however, that might give us the first clue because that's been pounded the highest. it's down 25%, to me that seems like it might be extended on the down side. if that can turn around a little, it might be less gloomy. that's where i went. >> larry, you will look back and see opportunities to buy high quality dividend growing stocks and you are going to look at that and say wow, did i miss an opportunity. >> all right. >> i think ron and i are just on different time frames. >> you know what, jim, in the short run, this market has a lot of shaky legs but no one rings a bell when it's time to buy equities. >> gentlemen, you know, both you guys were very poetic tonight. a lot of very interesting metaphors. thank you. up next, why is team obama

still obsessed with the massachusetts economy ten years ago? they just won't let go. i can't really understand why, because he seems to have no answer for the anemic american economy today, right now, and that's what really counts. [ female announcer ] it's time for the annual shareholders meeting.

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with a news update. more trouble is brewing for jon corzine. the global trustee in charge of recovering $1.6 billion in customer money said he might sue the former ceo for breach of fiduciary duty and negligence. the business took on riskier securities once corzine took over in 2010. corzine spokesperson stephen goldberg responded to cnbc stating quote, we simply do not agree with the trustees' suggestion that mr. corzine was negligent or there's any other basis to sue him, end quote. in other litigation news, bank of america shareholders are slapping the bank with a class action lawsuit accusing it of withholding the extent of merrill lynch's losses prior to a suit to acquire the company. and robert frank reports that john paulson purchased a palace for just $49 million in 2006. that property was listed at $135 million. ethan jones downgrades the uk's credit rating to double a

minus from aa, citing concern the uk can continue to cut its deficit amid weaker economic conditions. more mixed economic news. new orders for u.s. factory goods declined for the second consecutive month, falling to .6% in april. however, summer jobs for teens are rebounding, soaring to the highest level in six years. nearly 160,000 teenagers landed jobs in may, according to out-placement firm challenger, gray and christmas. teens may be encouraged by the labor market but president obama still trying to recover from the latest bad jobs report. we will tell you how he's on the attack now. "the kudlow report" back in a minute. this country was built by working people.

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welcome back to "the kudlow report." i'm larry kudlow. in this half hour, want a good indication on how bad things are? distinguished african-american and clinton democrat, former congressman arthur davis, is jumping ship on the s.s. obama. mr. davis joins me live to tell me why he has left the democratic party and joined the republicans. also this evening, state governments across the nation

are thinking about attaching a black box under your car to jack up your taxes on a mileage basis. which states are doing this black ops? it's nutty. we'll tell you about it. first up, obama tacks romney's record on jobs while still playing defense on his own jobs record in light of friday's disappointing unemployment report. amon joins us with all the details. >> after focusing many of the early campaign attacks on romney's tenure as head of bain capital, the obama administration and campaign are shifting tactics, focusing their criticism on romney's tenure as governor of massachusetts. take a look at this new ad out today. >> i'm barack obama. i approved this message. >> it started like this. >> i speak the language of business. i know how jobs are created. >> but it ended like this. one of the worst economic records in the country.

>> larry, this is going to be the subject of some debate all throughout the campaign season. what was mitt romney's record as governor of massachusetts in terms of business and creating jobs. for some independent analysis, let me refer you to america's top states for business. that is a cnbc series that we do every year and we went back and pulled america's top states for business in 2007 to see how massachusetts ranked that year. take a look at what the findings were that year. it was ranked 12th overall for business as a state. the economy was ranked 41st with low growth and relatively high unemployment, but massachusetts finished at or near the top in education, access to capital and quality of life, and larry, i can tell you the romney campaign responded to today's advertisement by the obama folks and said that they would be happy to match massachusetts'

4.7 unemployment rate under governor romney then against the nation's unemployment rate under president obama today. >> what did team obama say about 4.7% unemployment? i would think obama would love 4.7% unemployment. >> look, where they are now, 4.7 is not even conceivable by the time of the election and obviously it would make a huge difference to obama's re-election chances. yeah, you bet, they would love 4.7. >> thank you very much for the report. we appreciate it. all right. so who is the job creator for america? still unclear what exactly the president plans to do to turn around the economy, which is anemic, to say the best. the clock is ticking. i want to talk about this whole thing, from massachusetts then to america now. we have democratic strategist ted devine, vin weber, romney economic policy advisor. okay. give me the romney response on massachusetts ten years ago or whenever. >> well, it's incredible. the obama campaign, first of

all, let's keep in mind the obama campaign first had a surrogate out there attacking his wife. then they attacked his business. both of those backfired. this attack on the governorship of mitt romney will backfire, too. he took over the state after the collapse or the bursting of the tech bubble which disproportionately affected massachusetts. they were ranked 50th in job creation when he came in as governor, 30th when he left. they had a $3 billion deficit when he came in, $2 billion surplus when he left. credit was upgraded during the time mitt romney was governor of massachusetts. you contrast that with this dismal economic performance under barack obama and he would -- obama would clearly trade his economy for the one that mitt romney produced in the state of massachusetts. >> all right. ted, i just don't think you can make this case. i know you're going to make this case. here's what i really think. this is another mistake. this is like the attack on women. this is like the attack on bain capital. when is top obama advisor

axelrod going to be fired because he's had so many miscues. you know it, i know it, vin knows it. we all know this thing has gone so badly and all these ads are just wasting so much money and you're all going to get whooped in wisconsin tomorrow. axelrod's going to go. you're an inside guy. tell me when. when does he get fired? >> he's not going to get fired, okay? listen, i think david did a great job last time he and a great team are going to do a great job this time. i think the president's going to win. what they're doing on romney's record in massachusetts, which is pointing out the fact that it was 47th in job creation during his tenure, it lost manufacturing jobs at an enormous rate, that he increased the bonded debt of massachusetts astronomiccally when he was in office. romney is running on saying he's a job creator but his record in the private sector and government is not the record of a job creator. it's a record of someone who failed at job creation. i think david axelrod and everyone in the obama campaign from the president on down is

really smart to point that out to the american people. >> vin, i don't really think this is so brilliant. i'm not sure america cares about ten years ago. i think, i want to give you a shot, get tad back in, obama's campaign is supposed to be about the future, going forward. does this fit that bill? this whole massachusetts debate, you think voters care what happened in massachusetts? i know they care in a generic sense but give me your clinching, what's your clinching statistical rebuttal to tad devine's brilliant effort to cover this? >> first of all, i know david axelrod, i like david axelrod. he got us a new president four years ago and will give us a new president next time. let's just keep that. but the president has failed. the president talked about an 8% unemployment rate. we thought it was a ceiling, it's turned out to be a floor. the unemployment rate is going

up, factory orders are going down. the president is still the president. he's not the candidate. he can pose the extension of the bush tax cuts. he could propose part or all of bowles-simpson. he could do something instead of sitting there criticizing bush. there is no obama plan to make this better. >> let me just go, tad, this is interesting. to some extent, vin took the words right out of my head. why doesn't the president have a response to these lousy unemployment numbers, 1.9% gdp? analytically we're on the front edge of a recession. that's just an objective fact. any little thing goes wrong, we can go into recession. it's salvageable. why doesn't the president say he will, for the second time, extend the bush tax cuts, why doesn't he say i also want to get a highway bill and i will go along with the keystone pipeline? that kind of a package, to compromise, you know, i think it would help obama.

i really think people would see he's got some movement. why doesn't your man do that? this is why axelrod has to go. axelrod is so far to the left and hates republicans so much, he's giving obama bad advice. but you understand what i'm saying. extend the bush tax cuts, go for keystone, go for the highway bill, make a compromise in the summer of this year. it might help your man get re-elected. >> well, first, seeing how much everybody wants to get rid of david axelrod, i hope the president keeps him for starters because i think he's done a great job like he did four years ago. in terms of what you're saying, larry, the substance of it, i think what the president is advocating right now is not a return to the bush policies, whether it's the bush tax cuts or other policies, energy policies that president bush pursued. i think what the president is advocating and he should is a return to the clinton policies. listen, we had a test case in the '90s and the next decade, of policies that were president clinton's policies of taxing people fairly, of investing in education, investing in infrastructure, of creating

jobs, and we had a test of the bush policies, a complete catastrophe that brought this nation to the brink of bankruptcy. >> tad, my friend, look, i happen to be a pretty big supporter of clinton, okay? we're going to have another clinton supporter on in just a minute. but clinton had a booming economy. clinton did cut the capital gains tax. clinton was for free trade. the point i'm making is bill clinton governed during a time of great prosperity. right now, barack obama is governing in a time of great austerity. people do not believe we are in recovery and people do not believe he's solving jobs. you can't be jacking up taxes. you got to extend it. if your man's extended it once in a compromise, why won't he do it a second time? you've got keystone shovel-ready jobs. you could knock out 100,000 jobs. why not go there? why not? >> well, larry, the president has repeatedly cut taxes since he's come into office, whether it's the payroll tax or other taxes. by the way, the president has an ambitious plan of tax cutting

which has sat in the congress for almost a year, okay? it's full of tax cuts for small businesses, for individuals. it's a way to prime the economic pump. unfortunately, the congress, the republicans in the house, refuse to act on it because they want to stymie the president at every turn. that's what's holding our country back. political gridlock by republicans in congress. >> here we go. sorry, i've run out of time. vin, you got plenty of time. we always give you time. >> axelrod's out. devine is in. >> i basically would love to see that happen because tad devine is a very reasonable democrat. that's what i think. tad devine, thank you. vin weber, i appreciate it. now talking about jobs and the economy, as many as a million jobs are on the line because of cuts to the defense budget. this is orchestrated by capitol hill liberals. there are big ramifications. steve handelsman has the full story. good evening, steve. >> reporter: good evening from washington. the point of so-called sequestration, automatic spending cuts, was to force a

bipartisan budget deal on congress but it didn't work. the so-called super committee punted and now with a trillion dollars in cuts over the next ten years looming at the end of this year it's a hot partisan issue. the cuts are supposed to be 50/50, defense and nondefense, but liberals got the best of that deal. defense is not half of our budget and the big entitlements are not included. so defense takes a disproportionate hit. defense contractors are warning of layoffs. boeing defense ceo says the impact on his industry already cutting back due to earlier defense cuts could be devastating, with layoffs mullenberg estimates in the thousands. one study estimates a million possible layoffs. besides boeing, defense contractors are clustered in southern states like virginia, alabama and south carolina, and in california. republican challengers in those states in the affected districts are scoring points against

incumbents who won't fight against sequestration. one toss-up race in pennsylvania is very much about this one issue. democrats in the affected districts are pushing for a deal to break the sequestration plan but most of those democrats still demand revenue hikes to make up for any continued defense spending cuts, but who wins the white house and congress is sure to determine who wins this battle over automatic cuts. so larry, look for a lot of action in the lame duck session after the election. >> all right, steve handelsman, thanks very much for that tough update. up next, a prominent obama supporter, a clinton democrat as we talked about earlier, jumps ship, actually changing parties because the president's anti-business excessive regulation tax policies. who is this gentleman and are many others going to follow his lead? we will talk to him next up. still ahead after that, another tax grab by big government. i'm shocked. listen to this.

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it's been suggested by some on the president's political team that republicans are rooting for economic failure. that is absolutely preposterous. if republicans wanted failure, we would support this president's misguided policies. >> there you have it. that's senate minority leader mitch mcconnell. surely a troubling sign for the obama campaign with one of their most ardent supporters and allies, former alabama democratic congressman archer davis even delivered a second speech formally placing obama's name in nomination during the 2008 democratic national convention. well, mr. davis has now switched parties to become a republican. oh, my good es ness. he's also an old friend of mine and of the show. archer davis joins us live from washington tonight. as always, congressman, good evening. >> thank you, good to talk to you. >> let me ask you, when did the

light bulb go off? i read your blog, i read the "wall street journal" blog of your blog. when and why did the light bulb go off because this is very strong stuff. >> larry, it's no one thing, but this is the simplest way i can put it. i feel a lot of the innovation, a lot of the imagination, has really drained out of the democratic party. when i first got involved in democratic politics in the late 1990s, bill clinton was in the white house. whatever you thought of bill clinton, it was a place that constantly, his white house was a place that constantly talked about innovation, new creative ideas, whether on tax reform, on welfare reform. the only ideas i see with the democratic party today are expand government and increase the tax burden on people who are doing well. those two ideas put together aren't good enough and aren't strong enough to turn this economy around and you just put your finger on it in the last segment.

amazingly we are right back on the cusp of another recession. this is the weakest, this has been the weakest recovery coming out of a recession that we've seen since the late 1950s, and what an incredible burden it would be for many american families who have never recovered if we went right back -- >> double dip. >> -- into recession again. >> double dip would be too devastating even to imagine. that's why i'm trying to get a compromise going to at least start by extending the bush/obama tax cuts. anyway, let me ask you a couple things on your switching. first of all, you've got people like corey booker and people like harold ford who are essentially saying the same things you're saying. i know mr. booker, mayor booker, walked some of it back but i don't believe it. i think he spoke from the heart the first time. i know harold ford agrees with you on a lot of things. what the heck, even maureen dowd of "new york times" took a shot at it. do you think that you're going to get a lot of clinton

democrats, i'm going to call them clinton democrats, that's how i see you, i'm almost a clinton republican, but do you think, you know, there's a million or two million or more clinton democrats out there who desperately want growth and don't want to tax job creators and business. do you think that's going to be a factor? are they going to walk away from the obama democratic party and vote this time for the republican mitt romney? >> well, all you have to do is look at the numbers. late 2008, about 50% of people in this country identified themselves as democrats. that was the strongest democratic showing that we had seen since the early 1990s. now that number is down to about 40% and lower than that in some surveys. you look at the swing between 2008 and 2010, all kinds of data indicate that i'm one of millions of people who made this transition. look, there's no question there are moderates in the democratic party, but they don't have

influence, and when they dare to speak a moderate tone, they are immediately pressured to walk it back and to explain that oh, i didn't really mean it, my words were taken out of context, i didn't mean to say that mitt romney had a sterling business record, i was talking about sterling tea in china. >> that's what i was trying to say. this guy axelrod and plough and jarrett, they are so far left and they are taking obama and pulling him further and further to the left. that's why he can't win. if you ask me, that's why he can't win. i hope you'll come back. i want to continue this conversation. i appreciate your very brave words on the blog. many thanks to former congressman archer davis. up next, government gone wild. black boxes are for planes. but why are states suddenly looking to put them in your car? here's a hint. taxes. we will expose which states right after the break. ♪

welcome to the world leader in derivatives. welcome to superderivatives.

welcome back to "the kudlow report." here's a government outrage story. minnesota and oregon testing new programs to tax motorists for how many miles they travel rather than how much gasoline they buy. they may be the first but they won't be the last. basically putting uncle sam in the back seats of all your cars. this is nothing but a double tax on drivers.

black box in your car, smartphone, it's a tax grab. that's all it is. it's a tax grab. let's have a little discussion. robert atkinson, and dan mitchell, senior fellow with the cato institute. i say if you want to legitimately do this, you should tax at the point of sale. if you believe that electric cars and battery-driven cars are going to replace gasoline cars, which i do not, then tax it at the point of sale. but this goofy plan puts government intrusion and government sales taxes and the net effect is it's a huge tax grab. why am i wrong? >> well, larry, look, you're wrong because oregon and minnesota have designed their systems in a way where you don't pay the gas tax. you don't pay two taxes. you only pay the vmt tax when you go to the pump. to do it the other way, to tax a vehicle without any basis of the use of the system, free market principles say you should pay

for what you use. >> wait, wait. you're saying no gasoline taxes in either of those states? none? zero? if i pull up at a pump in minnesota or oregon, i'm not going to pay -- let's go to minnesota. >> correct. you do not pay. you only pay the vmt. >> they'll never give that up, dan mitchell. they will never give up a revenue source. you know it, i know it and mr. atkinson knows it. >> that's my concern. sooner or later when the government gets into this whole process of taxing on miles driven, they're not going to get rid of the sales tax on gasoline. it's sort of the same story we had in europe, they put in the value added taxes, never got rid of the income taxes. that's the first problem. the second problem is the privacy. now, don't get me wrong. my own colleague has said you can design these systems so that they are anonymous but would government do that? no. it's going to be just like we created the income tax in 1913, a two-page form, 14 pages of law, top rate of 7%. look what it became.

we can't trust government with new power. >> that's the thing, mr. atkinson, with all respect. i've never seen a government, a, abolish a tax or b, not begin a tax and then grow the tax and grow the tax. that's why i'm saying this thing by the way, apart from the incredible intrusion of privacy, i mean, black boxes and smartphones and all this other nonsense, how about point of sale? tell me, tell me that we will have no more gasoline taxes, no more diesel taxes and it will all be done somehow at point of sale for these new battery driven cars. >> well, look, the point that government always wants to raise taxes, just look at the gas tax. good example. it hasn't been raised since 1993 at the federal level. it's about 50% what it should have been. so we're paying actually less today than we did 20 years ago. case in point, government hasn't raised taxes. if government wants to do a big tax grab, they can do it with the gas tax. the vmt is a different system. i got to say, one of the reasons i like randall o'toolee so much

and respect him, is because he likes the vmt because it's a move to privatization of roads, a move to road pricing, a move to market oriented transport system. >> if we actually were to privatize the roads and let the market decide these things, then yes, everything randall says is great. the question is how much do we trust government, and you're complaining they haven't raised the gas tax enough. i would ask the question when have they ever cut it and why on earth do we have the federal government involved in what should be state and local functions anyhow? >> mr. atkinson, one point about the gas tax being too low. as you know, i'm sure, you're paying on the volume of gas and the price of gas, so the price of gasoline has gone up so much in recent years, i doubt if many americans really believe their gas taxes have gone down. >> they may not. the fact is the gas taxes have gone down in inflation adjusted terms. they're about 33% lower than they were in 1993. >> look at the price action.

look at the high prices of gasoline. that's what people feel in the wallet. and you're paying taxes on the price. government makes more money from a gallon of gas than the oil companies. >> you're not paying taxes on the price. you're paying it by the gallon. >> i got to go. gentlemen, we'll debate this some more. that's all forn't tops show. i'm kudlow. thanks for watching. tdd# 1-800-345-2550 let's talk about fees. tdd# 1-800-345-2550 there are atm fees. tdd# 1-800-345-2550 account service fees. tdd# 1-800-345-2550 and the most dreaded fees of all, hidden fees. tdd# 1-800-345-2550 at charles schwab, you won't pay fees on top of fees. tdd# 1-800-345-2550 no monthly account service fees. tdd# 1-800-345-2550 no hidden fees. tdd# 1-800-345-2550 and we rebate every atm fee. tdd# 1-800-345-2550 so talk to chuck

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