i was a levinson fan. he's done a remarkable job. i think he would have been terrific, too. let's give this person a chance given the fact that she's worked as google for 13 years and google is the idol of the industry. there is a good chance maybe she can get it right. the yahoo! brand is pristine. full disclosure, cbc and yahoo! have a deal. citigroup lost in the shuffle today. a terrific one. why sit terrific? two-thirds is overseas in emerging markets. when those turn, and they turn quickly, citigroup will turn with them. wells fargo was the best bank. there is always a bull market somewhere. i promise to find it for you here on "mad money." what do you have for us? >> retail sales down. it's a recessionary signal that worries me. good evening, i'm larry kudlow.

this is "the kudlow report." the top story tonight is the economy. retail sales are down for three straight months. normally that's a recession signal. for the sake of the country, i hope i'm wrong about the recession. our experts will weigh in and we'll preview ben bernanke's critical mid-year testimony coming tomorrow on the state of the economy and fed policy. also this evening, instead of trying to anti-depressant off for a session the president is in full election mode, once again demonizing business. take a listen. >> if you've got a business, you didn't build that. somebody else made that happen. >> well, economic -- kelly, too. the dow closed down on the lousy economic news. it's the 7th down day in the past eight. the new york times article alleging analysts with ethically

dubious behavior once again suggesting the stock market may be rigged against the little guy in favor of the big guys who get the key research first. gretchen morgenson is my exclusive special guest. >> the big news today, the drop in retail sales, the third consecutive drop caused major recession fears. i think the drop in sales is closely related to the slow down of jobs. look at nonpharfanonfarm employ. you will see the same decline down to 75,000 a month. fewer incomes. lower incomes. you will have people spending less. now what does it mean to gdp which is the ultimate recession indicator? take a look. hold onto your hats. a simple formula. gdp equals consumption, c, investment, i, that's housing and business investment. the g is government spending

which has been faltering and x minus m is trade. that means we import more than we export. the proportions, consumption is 70% of the demand side, 15% investment. # 18% is government spending and minus 3% for the trade sector. add them up to 100%. retail sales are about 40% of the c, that's a big number. in fact, retail sales overall are about 28% of gdp. so you have more than a quarter of the economy falling for the third consecutive month. that gets everybody worried. people are talking about 1% growth in the second quarter ending in june. that's less than half of the first quarter which is 1.9%. the question is are we going into recession and is this a trend for the rest of the year? now we bring in our distinguished panel to discuss. joining us now we have macro strategy president dave goldman,

joe lafornia and cnbc contributor, diane swonk from mesirow financial. i don't want a recession. let me say it off the top. the numbers worry me. i hope i have the analysis remotely right. what's your take? will it be worse? what happens in the third and fourth quarter? >> i hope it's not a recession as well. we are close to a stall speed. the risk of recession is the highest since the on set of the financial crisis because of what's going on in europe and the fiscal cliff in the u.s. clearly the jobs picture is back from the unseasonably. you still didn't have people on discretionary spending. food and drink con tracked which is important because many people were hoping lower energy prices would allow people to spend a little more on discretionary

things. that didn't happen. >> that could be the only saving grace. that's a very important point. you have the big tax hike staring us in the face. what about retail gasoline? it's gone nationwide from about $4 a gallon down to $3.40. >> de facto tax cut. that's helping us. it is one of the automatic stabilizers out there. you're right. employment numbers have been lousy. that's a generous number for the employment numbers. uh'm looking for 2 to 2.25% in the second part of the year. that's becoming my optimistic forecast with a lot of down side risk. it's muddling along at best. >> dave, uh want to ask you about q-2. will it be a negative number, positive, 1% number? then i want to go to the third and fourth quarters. >> i think we squeak by at 1%. we kind of have a digital outcome with the selection. as we have discussed we saw in

the first quarter a breakdown in the investment machine. we have more profits than ever, but the profits are going into mattresses, not into the kind of things that create jobs. no investment, no jobs. no jobs or retail spending. we have seen under obama's watch the average family has lost about 40% of net worth. so the incentive to save and rebuild net worth is powerful. with those huge headwinds we barely squeak by. if obama is re-elected we have recession in 2013. >> joe, i interviewed alan greenspan last week. an interesting point. he was not predicting recession. but he said because of the massive deficits we are facing for a variety of reasons, health care entitlements, you name it. people worry we can't pay our bills, that we have to jack up taxes. joe, greenspan said people aren't making long-term investments in structures, factories. they are not buying homes for the long run.

this is holding back employment and this is why sales are slumping as we see today. is greenspan right? how big a problem is this going to be? >> certainly he's onto something if you talk to business people. they say the same thing. they say the fiscal cliff is an inhibitor to hire. if we look at the university of michigan consumer sentiment data we see the very weak readings on sentiment largely reflect a lack of confidence in government policies as they are generally defined. i think he's onto something. it's hard to quantify. diane is right. we have a muddling through environment. because the corporate sector is healthy enough, i don't think we'll have a recession. we'll muddle through, get 2% growth. hopefully some clarity after the election will give us activity. >> i don't see the 2% growth. >> larry, at one -- >> 1.9% growth in the first quarter. you may have mentioned it, diane. a lot of people are marking down

second quarter growth to 1%. you know better than i know 1%? heck. that's just above the tree line. barely above water. >> it's a stall rate. >> anything goes wrong, inventory correction, a weird thing in europe or china could sink us. >> i spent the last week with 25 economists from around the world representing much of the world economy. all of us were more scared than we have been since 2008. that said, it does look like china will jack up growth by building a lot of bridges to nowhe nowhere. not the most productive way to do it but they can generate gdp. that's important. i think we are going to see -- we have seen investment revised in the first quarter. investment isn't near where it should be but i see the economy as the flip side of the 1990s. ironic for greenspan. we had a period of irrational exuberance, quoting alan. robust growth. so much certainty about the future we were willing to invest in companies without revenue let

alone profits and throwing all caution to the wind. we have the flip side of that today. we have subdued growth and uncertainty regarding policies in europe, in the u.s. both parties are guilty on this. >> last year at this time we grew under 1% with a 20% contraction in the second part of the year. we had to down grade and the economy accelerated to above 2%. the notion that we can't get above 2% is mistake. that's still possible. >> i'd like to see it. i'm waiting. david, one thing that's good. banks are making loans. that's from your own last report. ben bernanke urged the banks to loosen the strings more. why does he have to keep paying 25 basis points on the excess

reserve bank deposits sitting lying at the fed. why not do what the european central bank does and stop paying 25 basis points and maybe get banks to push the money out more throughout the economy. >> people aren't short of money to invest. when greenspan. >> they revised it. it's now 1.7. >> well. investment was three times profits. now it's around one times profits. lowest level of profit since 1947. that's lack of spirits, and a hostile environment. i think we are stuck at 1%. >> i want to sell this and i'm not having luck. i don't think the fed should pay interest on the unused bank deposits. there is one and a half trillion dollars worth. let them stop it.

maybe they will push out the money. the european central banks stopped paying money on unused deposits. why doesn't the fed? >> the problem with the banks is you have a regulatory onslaught. the fed of course taking volatility out of the market, lower the long end hurts net interest margins. a lot of things are just beyond the rate of excess interest paid on reserves holding us back. it's really much more regulatory than anything on the monetary policy front which i wish the fed appreciated more. >> it's not as much of ap issue. talking to my european banking friends they are envious because they think it is a good deal on regulation which is scary. >> bank loans are growing. >> most are student loans. >> i hear that we are not going into recession by the skinny skin skin of our teeth. david goldman, joe lavornia and diane swonk, thank you.

coming up, is the stock market rigged against the little guy? the shocking lead story in the new york times reveals top hedge fund managers may get inside information from big brokerage firms. we'll talk to gret then morgenson and later president obama managed to insult millions of small business owners and sbre pretemperatures this weekend. his slap in the face to hardworking americans reveals how clueless he is when it comes to america's job creators. mr. president, don't forget, free market capitalism is the best path to prosperity. the government plays a minor role. entrepreneurs run the show. i'm larry kudlow. we'll be right back.

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welcome back to "the kudlow report." so markets are supposed to be a level playing field. potential money making opportunities for all. today's front page new york times story says wall street is handing inside information to the big boys giving them the edge over the little guy when key research analysts change their company views.

so are the decks unfairly stacked against main street investors? joining us now the person who broke the story, columnist gretchen morgenson of the new york times. great to see you. >> hi, larry. >> when top analysts change opinions about the companies they cover do the big hedge funds get the information first? >> what i dug into which was interesting were so-called analyst surveys. their polls of key analysts across the street that come out every quarter, usually just ahead of earnings season. they ask a bunch of questions and the analysts answer them. many of them have to do with earnings. some of the key questions, for example, are what do you think an earnings surprise direction would be? now, the analysts are supposed to only give the information that is already out in the public domain. the information they have already submitted in research reports publically. but what i covered and found was

that in some spaces they seem to be showing a shift in sentiment that hasn't yet been disclosed publically. >> as i read the article it looks like they are handicapping it from 1 to 5. if they change their idea and something goes from 1 to 5 a the hedge fund knows something is likelier, maybe not perfect information, but likelier to change and -- >> that's right. >> that can make them money. is that basically what's going on here? >> that's essentially it. i was studying black rock in this case. it actually has begun under barclays global investors. blackrock bought barclays in 2009 and it continues the surveys. blackrock says we only want public information. but there were internal documents that i have that disclose what the people inside were saying which were these kind of sentiment changes can alert us to coming changes in

analyst estimates, to coming changes in analyst forecasts. so there was a sense of front-running analyst recommendations. >> a 2009 document. you are talking about black rock surveys. a 2009 document on the firm's analyst surveys is more exple sit. quote, we are trying to front run recs, or recommendations, referring to trading ahead of analyst recommendations. to me, the s.e.c. should be all over that. that's just totally unfair and rigged against the ordinary investor. >> well, larry, we have had discussions before as you know. you know how powerful analysts can be when they make a change in their earnings estimates the stocks can really rise or fall. this is a crucial period. this is a moment in time when having equal dissemination of the information is crucial to the level playing field.

i agree. >> last one. do you think the s.e.c. is going to do anything? >> well, i can't predict. certainly it's something i think they should be looking at. but, again, i am not a prosecutor. i don't even play one on tv. it would be hard to say. >> gretchen morgenson, new york times, thank you very much for the great article today. >> thank you. >> up next on "kudlow" stocks were down sparked by a devastating drop in retail sales. could be signalling a potential recession. that could damage profits. our market experts are next. this is the first car that i've been totally in love with

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well today, there's a new new york state. one that's working to attract businesses and create jobs. a place where innovation meets determination... and businesses lead the world. the new new york works for business. find out how it can work for yours at thenewny.com. uh i do want to mention after talking to gretchen morgenson of the new york times that a bunk of banks deny allegations that their top analysts give large hedge funds a heads up or front running on changes in company views. they are denying that. ubs, you can see on the screen. strict policies and procedures in place that require analysts' opinions in surveys to reflect their published opinions. on the other hand, ms. morgenson, a very good journalist, had evidence to the otherwise. we'll continue to pursue this story when more information

comes. now, turn to the stock market. another case of the mondays for the stock market. today's downturn sparked by a devastating drop in sales data could be signalling recessionary fears. it was unexpected. here is brian kelly, the cofounder of shelter harbor capit capital. b.k., besides the threat of deflation and recession, i want to ask about profits. i have a lot of threats here. i'm not a happy camper. what do you think? >> probably profits are most threatened from the fiscal cliff. if we can get movement on that we are all right. just to put it in perspective, the dow jones was up over 200 points on friday. for it to be down only 50 points today on an awful retail sales number says to me the market doesn't care about retail sales. they care about what ben bernanke has to say tomorrow. >> let's pursue it. what is bernanke going to say tomorrow? i suggested he stop paying 25

basis points on all the excess bank reserves. 1.5 trillion. it didn't meet with cheering from the panelists. i think you ought to do that. what's your take? >> i don't think that's a bad idea, larry. i think bernanke will go to congress and a tell them to start pulling on their oar. the monetary side of the house can't do the job of the recovery. they are running out of tools and options here. the number today was devastating and the reason the market probably didn't go down more is because it further boxes the fed into a corner and congress into a corner expecting more q.e., more stimulus somewhere. markets looking for a boost. they think bernanke will give it to them tomorrow. they don't want to be short in front of it. >> that's the old bernanke put thing which comes from the greenspan put thing. call me skeptical. uh think bernanke will lecture

congress to stop tax hikes coming. i think that will be the key point. he'll probably also talk about spending cuts. i don't think he'll give you what professional investors think he'll give you like easier money talk. >> potentially. certainly the focus of the conversation will be on what congress has to do. he's already said there is nothing the fed can do about the fiscal cliff. i suppose if you print enough money you can overcome anything. i think he will give hints that the fed is still there if needed with retail sales report you're looking at much lower gdp and bernanke knows that you need to have bond yields lower than nominal gdp to get you out of the deleveraging cycle. to your point on interest only reserves i love you, larry, but you're wrong on this one. the european central bank did it. they are destroying money market mutual funds in europe. if you do it in the u.s. you take away the fed's ability to unwind stimulus when they need

to. maybe they cut toyota a tenth of a percent like in japan. if you cut it all together you have to worry about inflationary spiral down the road. >> i don't see much inflation. michael farr, i see deflation. what's your best investment, mike farr? >> you have to look at balance sheets and earnings. i like qualcomm. family dollar is one i have added and started to nibble at low end consumer. qualcomm on the chips and technology. one other message i want from bernanke tomorrow is tell foengs on capitol hill that temporary changes in tax policy, fiscal policy don't make big economic differences. you've got to make out permanent. these guys don't get it, larry. >> b.k., seven seconds. best investment. >> gold now in a negative rate environment gold is a great place to be. >> thank you. much obliged. up next tonight the president's full frontal slap in the face to business owners and

entrepreneurs. why does he insist on demoralizing the nation's job creators?

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welcome back to "the kudlow report." i'm larry kudlow. in this half hour a surge of speculation that former minnesota governor tim pawlenty could be the veep choice for governor romney. turns out we have one of pawlenty's top advisers. plus, a bunch of republican governors going back on their word. now they want to tax online sales to have more money to spend. i don't really like that one one bit. first up, if you have achieved a certain level of success in america you may think your accomplishments are the result of hard work, ingenuity business acumen but president obama would tell you that you are wrong. this is what he told virginia business owners on friday. please listen. >> if you have been successful, you didn't get their on your own. somebody helped to create this unbelievable american system that we have that allowed you to

thrive. somebody invested in roads and bridges. if you have a business, you didn't build that. somebody else made it happen. >> well, is the president dumping on the american dream? sounds like it. we have dave goodfriend, sirius xm left jab host. cnbc contributor jennifer ruben from the right turn blog on the washington post and phil muser, former senior tim pawlenty adviser. phil, can i engage you for a moment? all of the sudden former governor pawlenty seems to have surged to the top or right near the top of the vice presidential list. why, in your judgment, would tim pawlenty make a first rate veep candidate running mate for governor romney? >> well, larry, who knows about the process? there is a lot of speculation and governor pawlenty is a good friend. he's proud to try to help governor romney however he can.

you know, his qualifications are multiple. first of all, he's ready. he's wicked smart on policy. he brings electoral strength and appeal. he's a good communicator. he connects well in a retail setting. he brings a lot of attributes you would want in a president and frankly he's spent a lot of time working hard to help the romney cause. a lot of good choices. >> when he ran he had a good tax reform, budget reform plan. >> he did. >> he's a sam's club republican. a middle class republican guy. also i want to put in he's a hockey player. he has rough and tumble in him. are those qualifications for vice president or not? >> i don't know if his slapshot qualifies him to be vice president or not. >> did he play hockey for the university of minnesota? >> he did. he played high school hockey. he still plays hockey a lot in

an old timers' league in minnesota. he'd connect well with people around the country if governor romney decides to go that direction. he's a terrific guy. >> when will the decision be made? sooner or later, phil? you know everything there is to know. what's your take? >> i have no idea. there are pros and cons to both. anyone telling you that they know doesn't. a small group of people is advising the governor. he's keeping close counsel. i think they will roll it out. i wouldn't put your chips in anything yet. >> phil, thank you. let's bring back dave and jennifer. jennifer, i want to focus on the obama anti-business story. it's really a terrible story. it shows me economic illiteracy. the guy doesn't understand profits. he doesn't understand thomas edison, steve jobs. he doesn't understand bill gates. why the heck would a president say the things he said?

>> you've got me. even if he thought it was true why say it? my goodness. you have been talking and others have been talking about the rotten economic indicators. part of it is the expectation that this president will whack everybody with more taxes. there is more regulation, more strangulation of business. more bad mouthing of business in this administration than any other administration in history. clinton never would have said this and he presided over a prosperous time in america. this is nuts. it's bad police station, bad economics. i don't know who he's appealing to. what people in america think business people don't deserve their riches and don't deserve to get ahead along with the rest of us? >> here's the money line, dave. i want to read it again. quote, if you've got a business, you didn't build that. somebody else made that happen. as jennifer said, even if you believed it, you wouldn't say it.

it's such a me the ander that will, anti-ka kapta anti-capita. why make a statement? >> if you talk to warren buffett or others they would say business succeeds in a good environment where there is infrastructure, where there is good education for a workforce. you talk about bill clinton. when i was in the white house i remember it was the pharmaceutical industry of the united states that said we want more funding for nih basic research. why did walmart want an increase in the minimum wage? for the pharmaceutical industry they didn't want to pay for the research. it's good when the cost is spread across society. walmart said our customers earn min muj wage. if they earn more they spend more at walmart. when the president says if you've got a successful business you're standing on the shoulders of other people. he's right. it's not an anti-business

message. just ask the leaders of any of the companies i mentioned. >> somehow i don't see steve jobs worrying about the minimum wage when he invented what he invented. i go back in history. i think president obama has no feel for the whole capitalist entrepreneurial process, jennifer. in other words, philosophically, historically, he has no knowledge base of what it takes to succeed, why people succeed and others fail, why great ideas can create 50,000 jobs. i don't think he gets it at all. >> he doesn't. interesting that bob should choose enormous, well funded corporations. those people are really not the people i'm worried about. i'm worried about the mom and pop business, the company with 25, 50 people that want to be 75 or 100 people. they are the ones suffering if the bush tax cuts expire. you're right, larry. i don't think he understands it. i don't think he's sympathetic tole them and i think he's

hostile toward them. he said he would raise cap gains tax even if it meant less revenue. his aim is to hurt the rich. not make the rest of us prosperous. >> phil, i heard you were still there. do you think -- serious question. do you think mr. obama, with all due respect, has a disdain for free private enterprise and do you think he's through and through a big government man? was that the message he was trying to send to the virginia small business people? >> i can't believe you're asking the question. it clearly takes a village. preferably a government funded stimulus assisted village. larry, why in the world would we hire mitt romney who risked entrepreneurial capital to create companies like staples sports, authority or brookstone when we could go to the kept of energy and participate in the friends and family program to

back solyndra. >> let's talk about mitt romney. >> why -- >> there's a guy -- >> let him finish. >> i think the issue is this. now and then in campaign speeches you get a clear window into the heart and soul of a politician in unscripted moments. that was an unscripted moment like the economy is doing fine. what you saw was a community organizer's approach to growing the american free sbrer prize system. he has disdain for business. it will be a central deciding issue in the election. it's a reason why independents are choosing mitt romney over barack obama. >> i know you've got to respond. i want to tell you. particularly in a second term but most of the time i never heard bill clinton take potshots at small business entrepreneurs. i never heard clinton say that. i want your take because you're a clinton guy. >> i am. >> you're also a business guy. >> i am. >> i don't see how you can justify what president obama said. >> first of all, i'm glad my republican colleague brought up mitt romney.

there's a guy that got everything on his own, right? didn't have to do with his rich dad, his private schools his daddy paid for. >> wait a minute. >> are you kidding me? >> come on! this guy -- >> no, no, no. he gave all that money away. factual point. >> thank you. >> he gave all his inheritance from his father away. he started from scratch. very important factual point. >> yes. how did he get into private school as a teenager, larry? >> he didn't start bain capital. he did it without his dad's money. >> he got a huge start in life as the son of a governor and a multimillionaire. if a kid in the ghetto today who's got nothing has a chance of making it in america it's because we have a good public school system. >> we have a rotten public school system! it's horrible! oh, my. >> you asked what clinton would do. >> one at a time. >> clinton balanced the budget without a single republican vote and, yes, folks, raised the

rates on the top earnings. balanced the budget. we tried it your way, larry, it failed. we tried it clinton's way. it worked. >> clinton was the third reagan term. jennifer, you heard what david said. i want a response. this business about mitt romney's father is the reason for his success. >> it's absurd. he didn't inherit the money. yes, he educated himself. it's great that he did because he created enormous wealth for many people. he increased jobs for americans. this is how the system works. the left in america doesn't accept the basic premise that wealth creators are necessary. they are an evil as far as they are concerned. the president thinks they are evil and they are not. without them we won't have prosperity and we won't dig out of the recession. one more thing, i would say. david's former boss created welfare reform. it was one of the most important

innovations of the 20th century in terms of public policy. this president has scuttled it. it's a disgrace. democrats including bill clinton should speak out. >> wrong way. it's funny how we are all nostalgic for bill clinton. david, jennifer and phil, appreciate it, everybody. coming up, democrats playing chicken with our economic future. we'll talk with one of the possible veep candidates, republican senator kelly ayotte from new hampshire. that's next.

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if your bank takes more money than a stranger, you need an ally. ally bank. no nonsense. just people sense. now to another story making headlines tonight. there is a report that both obama and rom uh any campaigns have veto power over what statements can be quoted and attributed by name. some are crying first amendment foul. i don't know anyone who does that. we'll talk to chief washington correspondent john harwood live in the white house press room. good evening. maybe i'm a sinnic. been around too long. i'm not shocked by any of this. >> i'm not either. larry, ever since i have been covering politics and reading about politics before i was covering it when my dad covered

johnson and nixon we knew about attempts by the government to try to control the terms of exchange for the release of information to reporters. there are some circumstances where they don't have the ability. if you are live on television they can't edit that. if you are in a mass briefing on the record they can't edit that. they can control which reporters, senior officials can control which reporters they talk to and which they don't. sometimes they will grant interviews. it's happened to me like it happened to most people who work in the room and other places around washington. they say, we'll let you talk to the chief of staff but it will be on background. you can ask if there are quotes you can use. that's the way it works. >> background. you're right. it happened to me when i worked in the white house. on the record, off the record. then there is background, deep back ground and whatever. this stuff has gone on -- it's mostly a print thing, isn't it? >> yes. it's about quoting words directly which print reporters need more than television

reporters do. television reporters need somebody on camera. print reporters need somebody to quote. funny when the story came out today i looked up a book from the washington post where my dad worked and saw a column ben brad uhly wrote in january of 1972 where they talked about the practice of background briefings where officials said you can't quote me by name. he said this is a conspiracy against the truth. when will it stop? it hasn't stopped some 40 years later. >> john harwood, many thanks. take a listen to a fired up senate minority leader on the senate floor today. >> he and the campaign advisers think it is good politics to keep the threat of these looming tax hikes on everyone right on the table as supposed leverage in an effort to raise taxes on nearly a million business owners right now. they are ready and willing to go

right off the fiscal cliff if they don't get their way. >> all right. now with president obama democrats playing chicken on this are the republicans of mitt romney going to lead with solutions? let's get to the distinguished senator from new hampshire, kelly ayotte. >> good to be back, larry. >> before we get into the politics of the tax cliff, you really took a rip yesterday at president obama and his attacks on mitt romney and bain capital. you say president obama has gone from an inspirational leader to a small politician playing small ball. that's tough stuff. i would like you to expand on that for us this evening. >> absolutely, larry. it's small ball politics because he's spending all his time talking about issues that don't matter to the voters. he doesn't want to talk about the dismal jobs reports we have had. over 40 months of over 8% unemployment. we are facinging the fiscal cliff at the end of the year we know if we don't address it we'll go into a recession. it's deeply troubling.

he doesn't want to talk about the big picture issues. $16 trillion in debt because the record on the issues has been abysmal. we added $5 trillion to the debt during his presidency. that's why you hear him talking about what i call issues that don't have anything to do with what's going to drive this election which is economy and jobs. small ball politics. our country deserves better. >> i was looking at rasmussen. doesn't matter in the polls. let's see. the daily tracking poll, 46 romney, 44 obama. so far it's really not showing up in the polls. senator ayotte, let me switch gears to talk about the tax cliff. senator patty murray made a speech today at brookings institute and said democrats will let all the tax cuts expire -- all of them -- unless republicans agree to tax rich people. what's your take on that? >> i don't understand it. deeply troubling, larry. essentially what they are saying

is we're going to allow this country to go into recession so we can raise taxes on a million small businesses which 25% of the work force works for those businesses. it just doesn't make any sense. it's absurd. also at risk, they want to basically go over the fiscal cliff and decimate the military just so they can prove their point on let's punish those who were successful. it doesn't make sense. larry, what we should be doing is real tax reform where we simplify the code and lower rates for everyone. that's what i would like to see happen rather than what we saw today obviously from one of the leaders of the democrats which is basically let's go off the fiscal cliff so we can punish those who have done well in this country. >> i'm all for full-fledged tax reform. today, retail sales fell for the third consecutive month. that's unfortunately a recession indicator. senator ayotte, i don't understand why democrats and republicans could even think

about raising taxes right now. in other words, if you are on the front edge of the recession as today's retail sales dropped for the third straight month why would you want any tax hikes on anybody at any point right now? i don't get that at all. >> it doesn't make sense. remember what the president said when he extended the rates in 2010. he said it would be a blow to our economy. he was right then and right now he's saying let's increase taxes on a million small businesses, even though the growth numbers are worse now, larry. it's absurd. we have to get our economy moving. that's why we need new leadership in the white house with mitt romney. he understands us. he understands that it's the small businesses and the entrepreneurs that create jobs. the president's statement, by the way, on friday that uh you talked about was astounding that he doesn't understand that people roll up their sleeves, put up their own capital to start a small business. the government doesn't do that. >> all right. it's not all about raising the

minimum wage. that's a great point. i don't recall steve jobs worrying about raising the minimum wage. new hampshire senator kelly ayotte, thank you very much for joining us. >> thank you, larry. >> up next, republican governors going back on their word and raising taxes to turn around and spend more. one of them is a famous one from new jersey. i'm not sure i understand this story. i don't see why you want to tax online companies just to spend more. i don't get it. maybe someone can help me. we'll be right back on the subject. why? i thought jill was your soul mate. no, no it's her dad. the general's your soul mate? dude what? no, no, no. he's, he's on my back about providing for his little girl. hey don't worry. e-trade's got a killer investing dashboard. everything is on one page, your investments, quotes, research... it's like the buffet last night. whatever helps you understand man. i'm watching you. oh yeah? well i'm watching you, watching him. [ male announcer ] try the e-trade 360 investing dashboard.

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a bunch of republican governors seem to be going back on their word. now they want to tax online sales to have more money to spend. i don't like it at all. let's see what our guests have to say. we have jared bernstein, former chief economist to joe biden. steve delbianco of net choice. steve, i will go to you first. if amazon.com want as distribution center and be subject to sales tax, okay, fine. why do the other online distribute tors have to be subject to a sales tax? >> great question, larry. easy to be confused. if anything the other governors ought to follow new jersey's lead. offer incentives to get amazon to come to their state and amazon will collect their sales tax. that's the best way to do it. all businesses play by the same rule. they collect sales tax for every place they have a physical es

presence. >> uhif you want to play by tho rules, fine but each state should make up their own mind and each seller should make up their own mind. i'm a great customer of amazon and love them, i see this as an amazon power play, jared. that's what i see. >> the thing that's missing here is if you're someone who purchases something from an online retailer like amazon that doesn't have a physical presence in your state you're still legally obligated to pay the tax. you, the purchaser. what happens is, of course, very few people do so. that puts our brick and mortar stores at a distinct competitive disadvantage. it also puts our best buys, targets, barnes & noble who have the physical presence even with their online sales at a competitive disadvantage to the other guys who don't. that's the problem here. >> steve -- please respond. >> those are facts. >> jared is giving the

traditional argument. please respond. >> there is nothing to that. consumers go online because they like the convenience and choice there. they don't know whether sales tax applies until they get to the shopping cart at the end of the purchase. consumers today do not care about the sales tax. even if the states collected all of the uncollected sales tax it would amount to just one half of one percent of total state and local tax revenue. this is not a pot of gold to solve state fiscal problems. it's just a big penalty for small businesses who are struggling to compete with walmart today. go online to find new customers that would never come to their store. as the small businesses go online, what, congress wants to force them to collect and remit for 10,000 jurisdictions in 46 states? that's not a way to stimulate small business. >> we're short of time. >> i'll be quick. first of all we are talking about something in the neighborhood of $20 billion. not small change. secondly, these taxes are already collected by online

retailers -- >> no, not at all. >> who already have the physical presence. both bills have an exemptions for businesses. 500,000 in one case and a million in the other case. >> not low enough. >> jared bernstein, thank you. steve delbianco, thank you. thanks for watching. want to raise the sales tax? go with marginal income tax and corporate tax rates on the other side. how about that for a supply side solution? my volt is the best vehicle i've ever driven. i bought the car because of its efficiency. i bought the car because i could eliminate gas from my budget. i don't spend money on gasoline. it's been 4,000 miles since my last trip to the gas station. it's pretty great. i get a bunch of kids waving at me...

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