>> with the big utility deal is after the close, i like to say i like bull markets. i'm jim cramer on "mad money," i will see you tomorrow! how's the sequester been? you said many times from this podium it was going to really hurt the economy. yet, you have to acknowledge, because you want to acknowledge, obviously, the economy is doing pretty well. >> all right. that was the big question at today's white house brief. it was exactly right. the economy is doing reasonably well. the spending cuts sequester was just a bunch of scare tactics. in fact, smaller governments actually is helping the economy to grow. first, the briefing was filled with questions about the many scandals continuing to face the white house, including a point blank question about whether attorney generaler rick holder has committed perjury. none of this is going away, folks. and dr. benefit carson will join

us live tonight to tell us it's not too late to stop obamacare. all those stories and more coming up on "the kudlow report" beginning right now. ♪ >> good evening, everyone. welcome to "the kudlow report." i'm larry kudlow. wall street preoccupied with rising interest rates. but i think that is a sign of a stronger and healthier economy. whatever i think, it was a city of red. seem ma mody joins us now with the details. good evening. seema. >> good evening, larry. the feds saying they will scale back and fend our major indices into negative territory. the yield staying above 10%. the subpoena dividend yield continues to narrow, but gold gaining 13 bucks in response to

a weaker dollar. now, high dividend yielding stock moving lower as traders react to that jump in the ten-year yield, consumer staple, telecom, tobacco moving lowers, all of operate a higher yield, higher than the s&p average yield of 2%. home builders, lennar retreated on fears of higher interest rates, mortgage levels surging to their highest level of a year. they could hold back, bank of america, goldman sachs were up for a second day in a row t. s&p financial sectors outperforming the market. larry, though the story continues to be bond and the rick they pose on this stockmarket, that's why you can see, with a look at the dow jones industrials, the markets ending in negative territory. >> thank you very much, seema, mody, we appreciate it. now, despite president obama's repeated scare tactics the sequester created confidence among investors an consumers,

all helping the economy to grow and supporting a record stockmarket rally. in other words, those big spenders in the obama white house were wrong again. let get right to our distinguished guests to talk about this better-than-expected economy. here now is cnbc contributor jack bernstein and glen hubbard. we welcome him back. the co-author of the new book "balance the economics of great powers from ancient rome to modern america." i go to you first, i think the sequester stuff was a bunch of scare tactics. what we are seeing is a really strong housing market and consumer spending, decent consumer confidence, the best going back many years a. good stockmarket, blah, blah, blah, nothing has hammond. you wanted to end the sequester, nothing has happened. i say the market likes the sequester. >> i disagree. you got a good point.

the question posed to jay carney is a good question. you pose it to me as well. you are right. a couple things, number one, certainly i wouldn't assign any of the good statistics you just mentioned to the sequester. i just don't see any model that puts those two together. secondly, some of the pain of the sequester is yet to come. we are starting to see some of the fur lies, third -- furlough, third, some of the things are bad. they don't show up in the economic data. there are kids losing head slots. you ween see that. >> what deflated the sequester and all of the horror stories around was the ease with which we could fix the air traffic controllers, the faa. that's what everybody had always said, i'm an exbudget green eye shea, have you as to move some of the sub accounts, take care of that. there is another one glen hubbard that is interesting, too. i want to thank jared and the obama administration for giving us a stable tax code.

i didn't like the rates going up, but they went up less than afeared, including capital gains, including dividends. really, in effect, they gave us virtually the entire bush tax cut. when the stockmarket took a look at that, when consumers an investors took a look at that, along with the confidence factor that the sequester wasn't going to matter, this thing has gotten better and bigger. policies ain't so bad. >> i think we can do better. we need tax reform. certainly, having stability in a tax code makes a lot of sense. i don't think the sequester had much of an effect on the economy. certainly the action increase would have had a larger effect. we have a lot of underlying strength in the economy. it's a good news story for stocks. >> it's not grown at 5 or 6%. i agree we have a lot of policy things to do. it's interesting, let's look at the labor market. the lost six months, they've averaged 200,000. i physical it should be 300,000. 200 is good. 140 six months before that. jobless claims are at a

five-year low. decent retail sales. consumer confidence as i said earlier. look. and the housing story. in other words -- >> you didn't see down, though. >> all the naysayers have proven to be wrong the liberal naysayers and you know what the conservative naysayers have been wrong, too. >> first of all, i appreciate your point on the tax code. i will say this, the labor market is one area where i still think we have significant economic slack. i mean, the unemployment rate is 7.5%. that's really high. the underemployment rate is around 14% and one thing you really don't hear enough about are worker's paychecks. if you look at the average wokker's paychecks, even with relatively low inflation that, i are barely keeping pace. if we are seeing better consumer, that has to do with housing wealth. >> and stockmarket wealth as well. look. . i'm not making a case. in my opinion out of the recession, we should have been growing at 5 or 6%. all i'm saying is things are better than you think. all these government scare

tactics. one other thing, you may disagree with me on this. the payroll tax cut was a temporary tax cut. i argued the milton freedman line unless it's permanent, it doesn't matter, people don't believe they'll keep their income. so when the payroll tax was cut. people didn't spent. when the payroll tax now reverts back to its higher level. it's not like they're not spending. it had virtually no impact. it's a short-term change in thing. it didn't matter one hoot. >> it had some impact. some people spend directly out of their paycheck every week or every month. it is true, a permanent tax cut would be better. if we have a perm nant tax cut, it has to be in the context of tax reform. the subject needs to keep coming back to that. >> i'm saying all these clever white house arguments and even some conservatives made them, temporary this and temporary that. oh my god, cut spending. i will challenge you, i think spending cuts are healthy for the economy. you know why? they shrink the government

sector. >> the thing you and i always disagree with is the dynamic. there are times in a cycle i agree with you. this is not one of those times. this is a time when fiscal head winds we don't need. thankfully, with ehave monetary tail winds pushing us in the right direction. look, low income people will spend their tax, they can't smooth consumption the way you suggested. what is missing is a counterfactual. thousand economy would be doing if we had gotten policy a lot more right in my view and. >> you are a lot more right. he wants to spend more, glen. >> i don't like fiscal -- but there is a different spending dynamic. the issue is not the spending we are doing today. it's the long-term problem in the entitlements. if we had gradual adjustments in those, those would be stimulating now. we could cut that spending longer term. >> heck entimements are actually looking considerably better than they did. >> i want to make one more point, by the way, the federal reserve has helped the

situation. i have become much, much less of a bernanke critic. in fact, i was completely wrong. all the money he put in reserves did not cause inflation. the money supply is growing. the real m-2 money supply. so not only have the statistics improved and home prices and stock prices, the inflation rate is rock bottom. that helps consumers. that helps incomes. that's something that's a tax cut of its own, the dollar is strong. gold prices are falling. i may be talking myself into too much of it. >> especially, let me say especially when you are talking about housing, you have to look at ben bernanke and company's fingerprints all over those results. >> there is the issue that the fed may be unwittingly misallocating xachlt it's hard to exit from this policy. yes, you are right. >> the exit strategy. i got to get out of here. hang out. stay with me. we got much more to do. now the star political scene

is about to joan us. dr. ben carson says it's not too late to stop the worse parts of obamacare. he agreess the lowering care, when we were promised just the opposite. he joins us next up. later, take a look at this picture. fairly or unfairly, this man has become the symbol of what's wrong with union leadership today. we have his story and tell you about the controversy swirling around him. don't forget, folks, free market us a territory is the beth path to prosperity. now, let's lower those tax rates. i'm kudlow for growth. we'll be right back. ♪ ♪ [ male announcer ] how do you engineer a true automotive breakthrough?

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can doctors give us a cure for endless problems of obamacare. the affordable tax is making taxpayers pay more for worse benefits. my next guest says it might not be too late to stop the whole thing. we have dr. ben carson at johns hop kens university and author of the new york times best seller "america the beautiful." dr. carson, sir, as always, welcome back. what would you recommend that

doctors in the profession do to try to either slow down or stop obamacare? >> well, you know, unfortunately, doctors tend to be relatively docile and we tend to go along to get along and that's why it's so easy to push us around and we need to recognize that we are actually the only ones who are capable of providing care and we need to start flexing our muscles a little bit. on behalf of the patients. because we are really the only ones who understand medicine and can provide the kind of protection that the patients need. you can see what's happened when we turned it over to bureaucrats and politicians. patients are getting royally messed over. premiums are going up very substantially. they were supposed to go down. you look at some of the special accounts that people were able to put aside for health care. those are now being taxed at

higher rates. >> all right. >> you know, you look at tax deductions for health care. they've gone down. >> before i go into some of those issues. i want to ask you. those are good issues. you said doctors can and should flex their muscles. tell me about muscle flexing and doctors and insurance. what would happen if the doctors stopped taking insurance? >> you know, a lot of doctors have stopped taking ints. the emergence of the concierge plans is blossoming all over the country and those doctors are actually doing pretty well. their patients are very happy. and that is a solution for people who have money but it's not a very good solution for those who don't have money. so we have to find ways to take care of them, also. and several doctors have senned me plans -- have sent me plan, which i'm looking at. i don't know how i have become the brokerage house for good plans, but there are some good

plans on how we take the middleman out of the equation. essentially, that's what concierge plans are. but there are ways to do that with nonconcierge plans, utilizing the money already in the system so that people and doctors gen to develop a relationship between themselves, not between some third party that dictates how everything should be done. >> before i bring my two distinguished guests in for some questions or two, i want to ask you this, look, i look at this thing, doctor, i don't pretend to understand all this i'm not sure i understand the half of it. here's what i read, here's what i think i understand. there is no infrastructure for obamacare that the so-called state insurance markets are not set up. there is not even enough funding for them for heaven's sakes. as a matter of fact, the secretary of ahs has raised private money from corporations whose legality is highly doubtful. you kind of ask yourself, what

is it, exactly? i don't see it. >> i don't know that anybody knows what it is. we do know there is a trillion dollars in new taxes between employers and individuals that have to be paid. we do know that, you know, three-quarters of a trillion dollars is coming out of medicare and we dough know it's we do know that it's a total disasterment we know many are putting people on part-time labor. we know the health exchanges are not being formulated. we know there were 250 million people insured before all this started. most were very happy with their plans. a year from now, there will be very few happy with their plans. you know, this is just not america anymore. >> dr. carson, a lot of what you just said struck me as a real cavalcade of misinformation, for example, these health exchanges, important for the infravery are -- infrastructure are set

up. as i. if they don't want to do it, they will set it up for them. >> why done you stop there, raising money from private corporation, some people think, jared, some people think that this is a cronyism and this is the government putting taxes on the economy. >> i'll explain that in a second. it want to get dr. carson to respond to this reween e recently found out based on the exchange they're setting up in california, their estimates of premium costs came in way below what everyone and i suspect, including you was suspecting. i'd like to hear you hold forth on. that it's actually working a lot better than you expected. larry, on your point. >> let dr. carson react to your question. >> first of all, people frequently throw out these things without throwing out the facts. let me see the facts that are backing up what you are saying. what we do know, we look at a place like oregon, where we

actually do have data on what happened when certain numbers, members of the population were allowed. >> we are talking exchanges, stick with the exchanges. >> it's a very similar type of zbligs no, it's different, not the same thing. talk about the premiums, exchanges, how they were tainted in california well under your estimate. >> well, first of all, you can take almost anything and you can take a certain segment of it and massage it and make it come out anyway you want it to. we are very, very aware of that. i'm sure you are aware of it, too. so unless you can sit down and give me some very specific -- >> i thought i did. >> you didn't give me anything specific at all. i would have to see all of the data. >> dr. carson, glen hubbard is an expert on health care. we are a little out of time. one quickie. >> which know when we expand the price in demand, the price is going up. i share that with dr. carson, how important do you think

consumer-driven health care is going to be to keep costs down in you mentioned the middleman. >> i think it's very important. because, you know, if you have something like a health savings account, and you are responsible for the money, when you go and you see a physician, he's also aware that you are responsible for the money, so that's going to have a very ameliorating effect on ordering things and cost escalation. that's when there is some nebulous third party involved in taking care of it, you don't really care as the consumer, you know, whether you are going to this hospital, where an apen detect oem -- appendectomy costs $40,000 or this one that costs $15,000. if you have a health savings account, you kier very much about that. >> i got to leave it there. dr. ben carson, thank you so much. thank you for taking the questions of our panelists as well. now, a tea party favorite

michelle bachmann announced she is not running for re-election. frankly, i'm sar -- sorry to hear that. we have that story and more next up on kudlow. you hurt my feelings, todd. i did? when visa signature asked everybody what upgraded experiences really mattered... you suggested luxury car service instead of "strength training with patrick willis." come on todd! flap them chicken wings. [ grunts ] well, i travel a lot and umm... [ male announcer ] at visa signature, every upgraded experience comes from listening to our cardholders.

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congress in minnesota. she says she knows she would have been re-elected. she hasn't given a reason why but inquiry into her spending has nothing to do with it. michael bloomberg tested positive for ricin. the letter was received at a municipal building in new york. another letter was sent addressed to an ad vocation group led by mayor bloomberg. no one gotstick sick. smithfield shares jumped, a chinese company is buying it. smithfield is the biggest pork producer. some are concerned about the implications this could have for food safety. smithfield says the goal is to import u.s. food to china, not the other way around. finally, look at this picture from the new york post, that man is mark rosenthal the president of new york city's largest municipal worker's union. he gets paid $156,000 a year. but members of hits own union are angry at him saying he works

two hours a day, most of which he spends napping at his desk as seen here, union officials say he also racks up $1,400 a month in food bills, which he charges to the union an here's the answer to the question you are probably asking, the new york post says, he weighs more than 400-pound. larry. >> that is one ugly story, one ugly story. i know, i want to say a quick word. you guys can respond or not. on the economy, on the economy, michelle bachmann, a frequent guest on this show when she was running for president, i thought she was excellent. she wanted to cut spending. she was the deregulator. she was a flat taxer. she wanted to relink the dollar to gold. i thought she had an excellent platform. i'm sorry she's leaving congress. if you care to say anything. >> i never heard her say anything about the economy that made sense to me, but that's me. >> you say that about me. >> no. you are making a lot of sense tonight actually up until this

part. >> up until this part. all right. glen you want to say anything? you don't have to. >> no, she certainly did have a free market operatation on the economy. >> i think she will be missed because of. that i do. i think she spurred republicans in the debates when she was hot. she faded. i get. that i think she spurred the gop to a free market message. just talking about the economy and free marks. because i think the republicans need to learn about free markets just as much as democrats do times. jane way, we give many thanks to seema mody for that new york post story. can you play that another time. that may go day after day t. white house briefing hot as the reporters asked for a myriad of scandals around team a bomb ma. that surp surrounds a question whether attorney general eric holder should fear for his job. president obama will stand by his man. >> the president believes the

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when it comes to the irs targeting scandal the burning question is just who knew what or when. the obama administration wants us to believe a few rogue forces in cincinnati are to blame for the whole problem, but newly surfaced letters suggest that higher-ups in washington, d.c. at the irs had requested additional information, including now suspended lois lerner who plugged the fifth before congress last week. contributor robert acosta joins us with the details. robert, jay sekulo is coming up. he says this was washington made. i want to ask you, does everybody finally agree this was washington made? >> larry, this is a huge development in the irs scandal because for so long the irs' tail was it was cincinnati bureaucrats making mistakes with

maine paper. now, jay sekulo and tina mitchell, saying the top irs lures were involved in sanctioning -- lawyers were involved in sanctioning the tea party. >> low crevice learner didn't -- lois lerner didn't do everything here. she was ably assisted by other bad people. i want to know, sarah hall ingram is my favorite. she was lois lerner's job, she was supposedly running obamacare. there are others. will these names surface? will they call brand-new witnesses? >> oh, yes, larry. i got off the phone with republican, they were apaperplectic. she is not talking to congress. they want to keep pressing, find answers and find out how far does this go to the top of the irs. >> can they go further up the

food chain, irs, treasury, into the white house? we already know that news travels fast. it never got to the oval office, however, until very late in the game. will congress pursue the food chain? >> congress is looking like a crossword puzzle. the white house says it wasn't involved. that doesn't mean the white house council, top treasury officials weren't involved. the question republicans will ask when they get back from recess is this, who let lois lerner do this? was she a rogue agent or involved in a broader plot within the administration. >> i'm telling you, soar ra hall ingarages i may be wrong, she was lois lerner's boss for several years when this thing exploded. she needs to be able to testify in front of the of these committees. thank you, robert acosta, national review, thank you very much. let us go to the former amentioned jay sekelow.

foodr today they filed against the attorney general, treasury secretary and is irs. our guest host is with us. jay, you are breaking a new story every single day. tell us about this lawsuit which is quite ul encompassing. >> well, here it is. i mean, you can see, it's about an inch thick, larry, it is all encompassing. although we list in the lawsuit ten unknowns and that is individuals we're going to try to get information about but the lawsuit is comprehensive. it is asking for not only injungtive relief and damages, we are looking at who knew what and who authorized this? first of all this whole rogue agent issue, that has been completely eliminated as fact. i'm holding in my hand a letter. larry, this is from the department of treasury from a tax lawyer. a tax law specialist at the irs that was involved in one of our

cases for 2013. >> in washington, you are saying? in washington? >> washington, the main treasury. so you know, let me make a statement. every time jay carney makes a statement. every time someone from the irs makes a statement, did they not know we have the letters? we were in core bonn dense or or correspondence for a year-and-a-half. i think you will see, we are getting into the bottom line of who authorized this. was it lois berner? was it people over lois lerner? what about the relationship between lois lerner and the white house? we know when it came to quote getting ahead of the inspector general report, that there were discussions with the white house counsel and the chief of staff and the president, pretty high up the food cheney is there that's where i was going. up the food cheney. your lawsuit is very important. it's interesting. it says basically they are still targeting tea party an conservative groups. it's the food chain i think which is ultimately going to be

great interest. let me ask you this, jay, you used to work for the irs if i'm not mistaken as an attorney. >> yes, a long time ago. >> what do you make of this idea, douglas schulman, went to the white house 118 times, what they were talking about, nobody knows. he ain't talking, 118 times. his predecessor mark everson, who has been on this show many times was there once during the bush years. this guy schulman 118 times. what does that mean? >> that there was an awful lot of discussions about tax quote policy going on between the white house and the commissioner of the internal revenue, which is unprecedented in our history. this whole idea that you had all of these meetings and no one ever discussed. this is what's so hard to believe. you had this targeting going on the irs issue that, mea culpa that meant a nothing. this was going on three years. we knew in 2010 this was happening, no one bothered to tell during these meetings the

commissioner of the internal revenue, we know he knew, none of this happened? there was not targeting going on? they do this two.5 years later, oh, yeah, we should have apologized. it's hard to believe. obviously, we don't have that discovery or those depositions, at the end of the day, i will tell you this. this is going to be a comprehensive series of discovery. we will get to the bottom of this ut it will be interesting to see how treasury handles it. the president was saying this was an independent action as if the treasury department and irs are not a part of the executive branch of the government. that's incorrect. every day it gets worse and worse. >> you worked in the treasury department once upon a time. i want to switch gears slightly. i want to go to the department of justice and attorney general eric holder. we learned yesterday, some good reporting by the new yorker, he had to shop around, his dpepty -- deputies to three judges in order to get this secret under surveillance signoff for james rosen, the fox

news reporter. not one judge, not two judge, they had to go to a third judge. then mr. holder, himself, signed the document that allowed the secret under surveillance to go on, yet, glen, my question is, how can he continue to tell us he never participated in any of that? >> that's a question the lawyers will have to sort out. the big issue i think in this irs scandal is the suppressing political competition. that's something the company sorely needs in cleaning up our dysfunction. that's the real casualty here. >> what do you think? >> can i ask jay a question? >> yes. >> i am not defending anything about the irs here. i want to get something straight. is it true when we hear like bob acosta just said that the irs sanctioned searchs of tea party groups. see, what i keep hearing is they sanctioned searchs of politically active groups, which is a different thing. now, if they

disproportionately -- >> they had to be on the lookout list. the be on the lookout list had fee phrases. they were targeting tea party and conservative groups. >> there were sanctions to search the politically active groups, if they disproportionately targeted conservatives, that was wrong. but there is nothing wrong about the exemption unit looking at the activities of these political groups, right? >> sure. if they actually asked those questions. the problem in this case is when the irs issued its information document request, the idrs, they didn't ask those questions. they asked, what is your issue? what position do you advocate with regard to that issue? what is your membership list? have you ever considered running for public office. what conversations have you had? that doesn't address the question of legitimate inquiry, which would be what are they primarily engaged in, which is what the internal revenue code says, by the way, they have a be on the lookout lils.

in the inspector general another report, they have the list as the irs lois lerner admitted targeted the tea party. that's not a dispute. that is fact. >> wow. >> that's from the irs' own words. >> just to follow up on that, are there any examples at all of them going after liberal groups? did they go ever a pro publica? >> no. >> they didn't go after them? >> no, they leaked information about conservative groups to pro publica. that's another lawsuit that's handled. >> jay, you are saying the exemption unit never went after liberal groups? >> no, that's not what i said. what i said was under this targeting plan of the irs, they were going after conservative groups and tea party groups, not only tea party but conservative groups. certainly, they check on groups. they do voluntary compliance all the time. part of my job with the irs was representing tax exempts. let me tell you how it works.

in this particular case, there was nothing in the internal revenue manual that authorized what lois lerner and people above her did. that was creating be on the lookout list. that's their own words. they apologize to conservative groups. they apologize to tea party groups. they did not apologize to left of center groups. they were not on the target be on the lookout list. >> jay, can i ask you? did they also target israeli groups? >> pro israeli groups taking a position opposite of what the obama administration was with regard to jerusalem and the middle east. yes, there was a targeting of conservative jewish organizations that were, in fact, taking a position contrary to the obama administration's middle east plan. that has been the subject of litigation. there is another acknowledgment there. they should not have done that. they did it. the question here, larry, is the president went after these groups prior to the election

right now. i'm stlur is not a memo, senate democrats write a letter saying, investigate these organization. then the irs did it. now, senate democrats are screaming, they should have never done it. maybe they shouldn't have written the ridiculous letter. >> hopefully, the investigation will explore all. that we have to go up the food chain. jay, thank you sore much. as always, good luck on the lute lawsuit. now, we need to abolish tax loopholes and get the power out of the hand of the politically corrupt irs. something good might happen here. we will talk tax reform up next on "the kudlow report." oh, he's a fighter alright.

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li. . so, could the irs scandal actually be good for growth? it should lead to tax reforms, which would also curve irs power and corruption. we are back with cnbc contributors chad bernstein and mr. hub board. you know what, before i go to growth, okay, what i'd like to

do is have a tax code tha rids 60, 70, 90, 100% of all these detuxs -- deduction an exemptions which gives power to an agency like the irs and power corrupts and power becomes political corruption. before i even debate marginal tax rate, i want to irs to have a whole lot less to do. the way to do tha is reform the exemptions in the tax code. >> a, i agree with you, but listen, i testified before a senate in the on this, i said for you republicans who want to cut spending, here's a great opportunity to do so. this is how we spend through the tax code, with tax expenditures for you democrats who want to rise revenues, here is an oms as well. a number of republicans said, no, when you close loopholes, you raise revenues. we're against that. you got to start with which

loopholes would you close, mr. kudlow. >> i want to say two things, to me, close the loopholes and the exemptions and tha includes this 501(c)(4). i don't think we have to have tha. >> i agree. >> even though i favor the tea party groups. what i'm saying is i want the irs to have a lot less to do in life so that we could cut the regulation, the pages in the register and the staff. while we're at it, i'd like to use the money we get from quitting those deductions to lower marginal tax rates on the other side for growth. that's my vision. >> we absolutely can. we have have an overall limit or cap or scale things back for high income people. there is a lot of things we can do. we are spending a lot. wasting a lot through the tax code. it does give the irs a lot of power. by the way, it gives members of congress too much power. >> it give lobbyist, fundraising groups, coney capitalists. cronyism in general. >> did i just hear glen hub

board e -- hubbard economist, to endorse obama to cap deductions raising something like 600 become over ten years doing precisely what i think you asked for. >> if you did it in the context of tax reform, absolutely. can you have a tighter -- >> tax reform. very clear here. garrett is creating poorly baited trap. >> he liked the idea. >> tax reforms by cutting particularly on business income for growth. we have to pay for. that one way to pay for tha is deduction limits. we know deductions 10 to 15 go more to the well-to-do. >> yes, my view, lower marginal tax rates, we can finance it be i the deduction and the exemption, however you limit them or erase them, fine. i also want to be sure to say this, tax reform is a tool an important tool to shrink the

size and scope and importance of government. government has run amuck. >> so even, even david axelrod, obama's own guy, his first glush u blush on this irs thing is tha the president didn't know because there is so much going on underneath of it he can't keep track of it. one thing to get this irs and other actions down, shrink them down is to shrink the whole tax code down. >> let me hit you with real politics right here. because of what you just said, we probably can't get the tax reform you envision, democrats believe, i think they're right, we need more revenues. >> we just did reef knews. >> but, we might be able to do corporate tax reform. the white house has said and corporate tax reform, build revenue neutral. >> yes. >> but you can't do corporate tax reform unless you do business, too. >> they're paying 50%. >> exactly. >> it's heard than you make it sound. focusing on business. >> can you do that. we did tha through '86.

you had a choice. >> no, no, no. you have to be open to. we already raised more revenue. >> what's wrong with revenue neutrality? you lower tax rates on businesses. >> you will get more revenue. >> thank you. will you grow the economy faster. in a year or two, the revenues will come rushing in. i am a dynamics scorer. i'm a reagan-laffer, steve kemp sierd, i wille in the day adie. i am willing to go after the dedid you, one reason is revenue neutrality. a bicker reason is to cut down the power and the need for the irs, which has become a corrupt agency. >> loose, i get you are willing to go after the deductions. i agree on the cap is a god idea. it means you don't have to go deduction by deduction. without new revenue, we simply can't meet the challenges and the obligations that government faces, including retirement

security, the environment. so many things. >> don't tax savings. >> we can raise new revenues in the context of a deal that had larger spending cuts. that's a context to have. raising more revenue without shrinking government. >> the spending, it's a discussion. >> all i'll say is i want to cut down the irs to size. while i'm dock it, i want pro growth tax reform. by the way the buzz in washington, folks, you can believe it or not, max baucus the chairman of the senate finance committee and dave kemp, the senate of the house and ways committee, they say they are talking about a tax reform deal tha would be tied to the debt ceiling later this year. all right. that's what they're saying. i can't vouch for any of it. i keep hearing it. maybe it will come true, anyway, we thank you very much for participating. glen's got a little more work to do. we will turn our attention to glen hubbard's new book. it's called "balance." he argues serious financial

imbalances are literally going to wreck this country if they are not remedied. that's next up on hubbard's book. we will sell some books for u. you. [ engine revving ]

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is /* ♪ the u.s. faces a financial crisis that could wreck the american position in world leadership if we don't solve our entitlement and our debt problems. all that according to my co-host at this hour in his new book

"balance, the economics of great powers from ancient rome to modern ages." let's look at the entitlement. you are an expert. you've written a lot on this. if we don't solve entitlement, a, we go bankrupt, seriously, or b, we will have to raiseing thes so much that we will probably wind up going bankrupt? is that snare. >> yes, we'd have to cut everything else government does, being able to defend the country, educate our children, conduct research. we can fix it and fis it gradually and progressively. but we have to start now. otherwise, we two the way of other great powtaries have stumbled when their politics don't keep up with economics in there in a general way, let's suppose we don't reform entitlements, we haven't done a great job until now. the last guy to reform entitlements was ronald reagan in 1981 and 1982 when i was there. so, how high would our income tax rate have to be if we did it

on the revenue side? >> well, if you look ahead the next 25 years to what the cbo says will happen to entitlements, it's a change in 10% of gdpt. federal tax raises in a good year 18 to 19% of gdp. that means 60% across the board. >> let's say the payroll tax, would it have to go up and up and up? >> it would have to continue to rise and that could continue to discourage work, take away income of americans. >> what is it in total, let's see, social security, it's 12.5%, all in with medicare, it's 15? >> correct. >> so would that have to go to snirt if we just raised it from the payroll tax side with no spending or market reforms on medicare, let's take medicare, would the total payroll tax have to go from 15 to 30 to 40? >> at least 10%age points. that's a very, very large change, especially when it's one

we don't have to make, sadly, what also would happen is we would cut everything else that government does. this is not the country we have signed up for. >> you know, are you on optimist. we are going to solve this problem. >> absolutely, we will solve this problem. >> give me your take on medicare first. >> on medicare, you have to make sure you are spending money on the least well off among us, so tailor away, move back from subsidies from -- do health care reform that makes markets and low costs for everybody. we can do this and gradually in a way that it doesn't hurt current seniors. >> how about social security? >> social security, everyone simpler, we change the way benefits are calculated for upper income households, gradually over time can completely take social security. >> no proift accounts in your vision? >> we k. i think we need more savings incentives to help america for its future. >> if we grow the economy at 3.5%, for the next 40 or 50

years, isn't that going to take care of at least part of the problem? >> it is, but we can't grow our way out of the entitlement problem, bow does it help. >> that's a terrific help. many thanks, glen hub hubbard, his book is available now. thanks for watching, glen hubbard, good luck on the book and everything else. i'm larry kudlow. we will be back tomorrow night. hey, so uh... what's going on here? do you want the long or short answer? long i guess. chevy is having a big -- huge, in fact -- event. the-great-deals-on-our-most- fuel-efficient-line-up-ever- for-just-a-very-short-time-so- you-better-hurry-extravaganza! so what's the short answer? awesome. [ male announcer ] the chevy memorial day sale. now, get $500 memorial day cash for a total cash allowance of $2,500 on a 2013 chevy malibu. hurry. offer ends june 3rd!

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