On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:



WILL WASHINGTON WOO BACK BUSINESS?




- Joy Reid, ReidReport.com Editor; Miami Herald Columnist
- Andrew Busch, BMO Capital Markets; CNBC Contributor
- Ben Ferguson, Syndicated Radio Talk Show Host

BILLIONAIRE TAX, FIGHT OF THE FATCATS: GATES VS. BALMER

CNBC’s Dennis Kneale has the story.

DO THE RICH WORK HARDER?

- David Goodfriend, Fmr. Clinton W.H. Official; "Left Jab" Co-Host/Air America Co-Founder
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

IS AN EPIC BULL MARKET RUN COMING?

- Anthony Mirhaydari, Founder & editor of EdgeLetter.com
- Joe Battipaglia, Stifel Nicolaus Market Strategist

AIG PAYING BACK UNCLE SAM

- CNBC’s Mary Thompson reports.

IS THIS REALLY THE END OF BAILOUT NATION?
IS THE TIMING SUSPECT?
- Robert Jackson, Columbia law school professor. Deputy Special Master for TARP Executive Compensation

LIQUID ASSETS: PRIVATIZING WATER
- CNBC’s Michelle Caruso-Cabrera reports.

Please join us. The Kudlow Report. 7pm ET. CNBC.

QE2, QE1.5 . . . Whatever

There may be a new normal coming to Wall Street. It’s called: bad news on the economy opens the door for so-called good news on the Fed’s latest rescue mission to increase its balance sheet and pump up the money supply. I guess it’s QE2 or QE1.5. Whatever.

The Dow went up nearly 50 points in today’s trading, despite big drops in both consumer- and business-confidence measures. Obamanomics is still on the floor. That’s the key theme for the election.

However, the reflation trade is in full swing, with gold jumping $12 to $1,311 and the U.S. greenback sinking to its lowest point since early February.

So I guess an easy-money Fed is still creating a pretty good tailwind for shares. And I’m also gonna guess, even though most people disagree with me, that a continued dollar decline will result in a higher inflation rate sooner than you think. Whether it’s 1 or 2 percent more, whether it’s next month or next year, the message of rising gold and a dropping dollar is not good.

The Fed’s target rate, adjusted for current and expected inflation, is negative. And that abnormal situation, so reminiscent of the early and mid-2000s, is driving up gold and commodity indexes.

Treasury bonds keep rallying down to below 2.5 percent on the bet that in November the central bank will buy at least $100 billion of bonds if not more. The Fed believes the money supply has got to grow faster, and that somehow that’s going to break through the fiscal logjam and produce confidence in the economy and job-creation.

Yes, this monetarist view can build up the money supply. But will it solve the economy? Not unless there’s a change in the spending, taxing, and regulatory wall that Obamanomics has built.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


BIG BIZ CONFIDENCE DOWN ON THE ECONOMY





-WHY IS CONFIDENCE FALLING?
-IS WASHINGTON THE OBSTACLE?
-WILL ELECTION ROLL BACK THE SCOPE OF GOVERNMENT?
-UNCERTAINTY VS. CONFIDENCE - ELECTION IS EVERYTHING
-IS TEA PARTY FREE MARKET CAPITALISM BULLISH?

- Art Laffer, Chief Investment Officer, Laffer Investments; Fmr. Reagan Economic Advisor
- Julian Epstein, LMG CEO; Fmr. Democratic Chief Counsel
- James Pethokoukis, Reuters Money & Politics Columnist
- Joy Reid, Editor of ReidReport.com; columnist for the Miami Herald

THE FED: QE2, QE1.5 . . . WHATEVER

- Jon Hilsenrath, Chief Economc Correspondent; The Wall Street Journal - DC/WSJ Bureau
- Michael Pento, Euro Pacific Capital; Senior Economist/Vice President Managed Products

NEW GOP LEADERSHIP: WHERE'S THE SENATE'S PLEDGE TO AMERICA?

- Sen. John Barrasso (R-WY)

FOLLOW THE MONEY: NEW RUNNERS RAISING MORE MONEY THAN INCUMBENTS

- CNBC’s Eamon Javers reports.

ARE DEMOCRATS PLAYING A GAME OF TAX CUT CHICKEN?

- Robert Reich, Fmr. Labor Secretary; "Aftershock" author; CNBC Contributor; Univ. of CA., Berkeley, Prof. of Public Policy
- Steve MooreSenior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author

Please join us. The Kudlow Report. 7pm ET. CNBC.

TARP Again?

President Obama is crowing about his small-business bill, signed into law on Monday. “It was critical that we cut taxes and made more loans available to entrepreneurs,” he said. Trouble is, small businesses and community banks don’t want Obama’s $30 billion program. That’s right. They don’t want it.

An AP story quotes community bankers who do not want the Treasury Department or other federal agencies to own stock in their banks. They know the regulatory takeover risk that will come with this program. Next thing you know, the government will order banks to make unaffordable mortgages available to low-income folks, or perhaps force business loans on the basis of race or gender.

“We have taken a strategic decision not to have our primary regulator, the government, also be a partner in our bank,” said William Chase Jr., CEO of Triumph Bank in Memphis, Tenn. The upshot is that Obama’s whacky $30 billion mini-TARP is likely to be rejected by the vast majority of small banks. They took a look at the TARPed-up regulation overhanging the big banks, and they don’t want any part of it.

Triumph’s Chase also said that his “business customers are mired in uncertainty and are reluctant to invest in their businesses.” Chase is onto something. According to the National Federation of Independent Business (NFIB), only 4 percent of small-business owners surveyed in August cited a lack of financing as their top business problem. And a full 91 percent say all their credit needs are met.

So what’s the real problem? It’s the economy, stupid. And it will get worse should the entire Bush tax-cut plan, including the alternative minimum tax, wind up in flames at year-end. If the Bush rates expire, an already sluggish recovery will be doomed. That’s the real issue.

But Obama thinks his $30 billion mini-TARP will do the trick. Most folks may not know it, but as part of this plan, the Treasury would buy stock in the community banks that qualify, with those banks having to pay an annual dividend of 5 percent to the government. If those banks make loans to small businesses, the dividend payment might drop to 4 percent. But if they don’t use the money for loans, the dividend payment becomes a penalty at 7 percent. That amounts to Treasury control of the small banks that play this silly game.

Who in their right mind would sign up for this? This is government-planning intervention almost beyond belief.

Now, the Obama plan includes some tiny targeted tax cuts for capital gains and faster business depreciation. But why not universalize those ideas for all businesses on a permanent basis, instead of just small-ball targeting? If you believe those investment-related tax cuts will work for a year for small businesses, why not believe they will work permanently for all businesses?

Just lower the cost of capital and raise the investment return permanently to reignite sagging animal spirits in the economy. Then let markets — not government planners — make the final decisions.

Another business-tax point: In the Pledge to America, the GOP House leadership unnecessarily plays small ball with its own small-business tax plan. The Republicans want a tax deduction equal to 20 percent of small-business income. But they would be much better advised to take a big-bang approach that would lower the marginal tax rate on all business profits, large, medium, and small. Take the top rate of 35 percent down to 15 or 20 percent. Better yet, replace the corporate-profits tax for all businesses with a sales tax net of all investment expenses. This would end the double tax on business capital and provide new tax-rate incentives.

And one other bee in my bonnet: Republicans should support a 5.25 percent tax holiday on the repatriation of $1 trillion in U.S. corporate profits that reside overseas. This Bush-era idea worked in 2005 by bringing about $350 billion of new investment into the United States. And the stakes are even higher now. At the lower tax rate, American firms will bring their money home. Since some portion of that new money will go into new investment and job hires, this plan will pay for itself.

So I encourage the GOP to think big on business taxes, not small. And also to think big on major flat-tax reform to radically simplify the crazy IRS system, slash the marginal rate, and broaden the base to get rid of all special-interest tax subsidies.

Let free-enterprise know that change is really coming.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


RAILROADS & RECOVERY
PLUS…BUSINESS' PERSPECTIVE ON OBAMANOMICS & THE GOP PLEDGE TO AMERICA



-Matt Rose, BNSF Chairman & CEO will be on set.

REPUBLICANS & RECOVERY: OBAMA ATTACKS GOP PLEDGE TO AMERICA...DOES THE REPUBLICAN PLAN HAVE ENOUGH TEETH?

- Rep. Eric Cantor (R-VA) will be aboard.

SENATE ELECTION WATCHLIST
- Scott Rasmussen, founder and president of Rasmussen Reports has all the latest election details.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Destroying King Dollar Is Not the Solution

Fed head Ben Bernanke and the FOMC dropped a new policy bomb at their meeting this week. Now they say inflation is too low. That’s the real problem. And the solution? Punch up the money supply and punch down the dollar — or what I used to call King Dollar. No more.

In the 24 hours following the Fed announcement, gold rocketed up toward $1,300, a new record high. And the dollar plunged. It’s a big vote against the central bank and its constant tinkering and fine-tuning.

The Fed actually has opened the door even wider for more money-creating, balance-sheet expanding, Treasury-bond-buying actions at its next scheduled meeting, which will come the day after the midterm elections on November 3. That’s when QE2 may sail. “Quantitative easing” is what they call it. I call it dollar whack-a-mole.

Here’s a currency-trader quote from the Wall Street Journal: “Quantitative easing is broadly viewed to be corrosive to a currency’s value.” Right on, brother. Even though Bernanke doesn’t get it, the weaker dollar will rev up inflation mighty fast.

But right now, the reflation trade is king, not the dollar. Gold, commodities, some stocks, and foreign currencies are the place to be.

And do we really need more inflation? And should the Fed sacrifice the value of the dollar to get it?

Wall Street economist John Ryding doesn’t think so. He notes that over the past four-and-a-half decades, the consumer price index (CPI) has increased six-fold. So Ryding believes it’s absurd for the Fed to worry about a low inflation rate over the past year or so. Ryding is right.

Regarding the so-called too-low inflation rate, here are some facts: The CPI over the past year is up 1.1 percent. Producer prices paid by businesses are up 3.1 percent. And import prices are rising 4.1 percent. So it’s not as though all these indexes are actually plunging. And to the extent that the CPI and the personal consumption deflator (1.5 percent) are rising only a bit, well, that should be a good thing.

But here’s what the Fed is really missing, or ignoring: All of these price indicators are backward-looking. Sensitive, forward-looking inflation proxies — like gold and the CRB spot raw-materials index — are surging upwards. And the dollar downwards.

One of the cornerstones of economic growth in a free-market model is domestic price stability and a stable, reliable dollar. This is crucial for confidence and capital formation. In fact, Nobelist Robert Mundell always argued for low tax rates to spur growth and a steady dollar linked to gold to ensure price stability.

But now we are moving deeper into monetary Keynesian fine-tuning to control the economy. That, plus an overspending Keynesian fiscal policy, may be combined with higher tax rates and an ever-weakening dollar. It’s totally wrong. It’s exactly the reverse of Mundell’s thesis. Sinking the greenback and pumping more money into the system while raising tax rates and overspending is, over time, a prescription for stagflation: too much money chasing too few goods.

Now think of this: With all the Fed’s pump-priming since late 2008, there is still $1 trillion of excess bank reserves sitting on deposit at the central bank. This massive cash hoard suggests that liquidity is not the problem for the financial system or the economy. And putting another $1 trillion into excess reserves only doubles the problem.

A much better idea would be a fiscal freeze on spending, tax rates, and regulations. This is apparently what the tea-party driven Republican congressional leaders intend for their election platform.

Such a freeze would go a long way toward reducing the massive overhang of uncertainty that has plagued the economy and stifled the animal spirits. The Fed can print money, but it can’t print new jobs or growth. On the other hand, a rollback of the big-government obstacles to growth would get folks to put money to work. Not only the $1 trillion in excess bank reserves, but the massive corporate cash hoard, estimated at roughly $2 trillion.

And a lot of that corporate cash is lodged overseas to avoid punitive U.S. taxation. So, in addition to freezing tax rates at home, why not move to a 5 percent tax-rate holiday on repatriated foreign corporate profits? The result would be $300 billion to $400 billion flowing back into the U.S. economy for investment and job-creating purposes.

In other words, pro-growth fiscal action is the solution, not wrecking the value of the dollar or somehow boosting the future domestic inflation rate.

Historically, nothing good has ever come to our economy from a steadily rising gold price. Doesn’t anybody around here have enough common horse sense to see that? Maybe that’s what this midterm election is going to be all about.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

WHAT IS GOLD'S HISTORIC RALLY TELLING US?

- Don Luskin -Trend Macro Chief Investment Officer
- Dean Barber - Barber Financial Group President



STOCKS VS. BONDS: WHERE TO PUT YOUR MONEY

- Jack Ablin - Harris Private Bank
- Jim Iuorio - TJM Institutional Services...Options Action Contributor

FORBES WEALTHIEST PEOPLE IN THE WORLD

- Forbes Bruce Upbin joins us.

THE NEW REPUBLICAN AGENDA: IS IT THE SAVIOR FOR THE ECONOMY?

-Joy Reid - editor of ReidReport.com and columnist for the Miami Herald
-Ben Ferguson - syndicated Talk Radio Host

THE NEW GOP REPUBLICAN AGENDA

Rep. Cathy McMorris Roders (R) Washington/House GOP Conference Vice Chair

Please join us. The Kudlow Report. 7pm ET. CNBC.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:


LARRY SUMMERS LEAVING THE WHITE HOUSE?

- CNBC’s Eamon Javers reports.



THE FED

- Jeff Saut - Raymond James Chief Investment Strategist
- David Goldman - First Things Magazine
- Vince Reinhart - Former Federal Reserve Board's Division of Monetary Affairs Director

THE REPUBLICAN PLAN FOR ECONOMIC GROWTH

- Rep. Paul Ryan - (R) Wisconsin
- Sen. Judd Gregg - (R) New Hampshire

VIEW FROM THE CORNER OFFICE
Is Washington assaulting business and undermining economic recovery?

-Jim Tisch. Pres. & CEO of Loews

CAN THE TEA PARTY FIX THE ECONOMY?

*Steve Moore - Wall Street Journal Editorial Board Sr
*David Goodfriend- Fmr. Clinton W.H. Official

THE CASE FOR ZERO PERCENT CAP GAINS

-Allen Sinai - Decision Economics Chief Global Economist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Kyl Rebuts Obama on Bush Tax Cuts

During CNBC's live townhall yesterday, President Obama refused to back down from his opposition to an extension of all the Bush tax cuts. He said such a move would be irresponsible. Shortly afterward, Senate Minority Whip Jon Kyl of Arizona joined me to offer the Republican response.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

REACTION TO PRESIDENT OBAMA’S CNBC TOWNHALL

-Evan Newmark -"Mean Street" columnist for the online Wall Street Journal
-David Goodfriend -Fmr. Clinton W.H. Official
-CNBC’s Rick Santelli

MARKETS & ECONOMY
SO THE RECESSION’S OVER, NOW WHAT?

-Bob Froehlich - The Hartford, Sr. Managing Director-
-Jim LaCamp - Macroportfolio Advisors
-CNBC’s John Carney

OBAMA REACTION FROM CAPITOL HILL
- Sen. Kyl (R-AZ) will be aboard.

UNTRA-EASY FED & RECORD GOLD PRICES

- Vince Reinhart - Former Federal Reserve Board's Division of Monetary Affairs Director
- Andy Busch - CNBC Contributor & BMO Capital Markets

Please join us. The Kudlow Report. 7pm ET. CNBC.

Canary in the Inflation Mine

Gold hit a fresh record high of $1,277 today. Lately it’s been on another tear. People have a thousand reasons for the gold rally: Safe havens. Uncertainty. European debt. American debt. Better than stocks. And on and on.

My take?

Gold keeps rising because of bad money. The Fed’s target rate is negative and will remain so. The dollar and other paper currencies are in a race to the bottom. The Fed is contemplating printing even more money. And when you add all this up, the inflation outlook is higher, not lower.

Gold is the canary in the inflation mine.

Now, today’s CPI is low: only 1.1 percent over the last 12 months. But producer prices are 3.1 percent. And import prices are 4.1 percent. Meanwhile, commodity indexes are rallying everywhere. Silver has gotten back to $20.

In the short run, I know that inflation is not a big problem. I also know, whatever the unemployment rate, that deflation is not a problem. And I continue to believe that proper economic reform should re-link the dollar to gold. If the Fed and Treasury do not do this, inflation is going to become a problem.

A Bullish Tea-Party Revolt

This past week I gave a speech to a group of investors. The organizer of the event e-mailed me the night before, asking that I please try to be optimistic. Well, that’s my usual habitat. But optimism has been hard for me this year. Our muddle-through economy and lackluster stock market, challenged by so many taxing, spending, and regulating problems coming out of Washington, are the reasons why.

In fact, until recently, I’ve been advising people to take profits in the stock market, rather than buy-and-hold. You should keep your money before the Obama IRS takes it from you.

But following the tea-party primary victories in Delaware, New York, and New Hampshire this week, I’m once again getting energized.

Free-market capitalism is on the comeback trail. That’s one of the key tea-party messages. And make no mistake about it: The free-market power of the tea-party political revolt is totally bullish for stocks and the economy.

In short, this is a revolution.

The political elites in both parties don’t get it. Nor do the mainstream media. But the tea-party movement is stopping Obamanomics dead in its tracks. And it will overturn the Keynesian big-government planning effort now in full force in our nation’s capital. The tea parties are Reaganism reincarnate, and then some.

It’s all there in the Contract from America: Limited government, individual liberty, economic freedom. Defund Obamacare. No tax-and-nationalize energy scheme. Stop the tax hikes and move to a flat-tax system. No special favors and subsidies. No crony capitalism.

Oh, and let me underscore the tea-party revolt against runaway government spending and debt-creation. No TARP. No stimulus. No Obamacare. No Bailout Nation for GM, Fannie, Freddie, and AIG. Instead of federal spending running up to 25, 26, or 27 percent of GDP, look for our new tea-party representatives to move it back to 20 percent of the economy, or even less.

There’s a great story in Friday’s Wall Street Journal called “Tea Party’s Rise Gives Business Pause.” The thrust is that big businesses and their K Street lobbyists are worried that special tax breaks and subsidies for Wall Street, timber, fast food, road building, energy, farming, autos (such as cash for clunkers for the car lobby), and housing (including homebuyer tax credits for the realtor and homebuilder lobbies) will be blown away by the new tea-party representatives. Well, they should be worried.

Quoted in the article, Raul Labrador, the tea-party-backed House candidate from Idaho, says he opposes all government programs that help one segment of business over another. “I’m against all of them,” he tells the Journal. “I don’t think the government should be picking winners and losers. We should have taxes low for everybody, and not just for a particular industry or segment.”

In other words, this is not going to be your father’s Congress. Nor is it going to be your father’s Republican party. The party of George W. Bush and George H. W. Bush is about to be totally transformed. Constitutional spending limits. Low flat-tax rates. Slam-downs on budget baselines. Pitchforks maybe, but not pork.

A few months ago I wrote about the emergence of a new free-market nucleus, motivated by tea-party ideals, in the Republican caucus of the Senate. That nucleus is set to grow. And that’s exactly why I’m getting more optimistic.

The new blood includes Carly Fiorina from California, Ken Buck from Colorado, Pat Toomey from Pennsylvania, Rand Paul from Kentucky, John Boozman from Arkansas, Mike Lee from Utah, Marco Rubio from Florida, Joe Miller from Alaska, Kelly Ayotte from New Hampshire, John Raese from West Virginia, and Linda McMahon from Connecticut. And who knows, maybe even Christine O’Donnell from Delaware.

They will join free-market Senate stalwarts like Jim DeMint, Tom Coburn, John Thune, Jon Kyl, Richard Shelby, and Jeff Sessions. Again, I repeat, this will not be your father’s Republican Senate. This is a new transformational breed. This is a free-market revolution powered by the tea party. Along with a likely Republican takeover in the House, we could be looking at a free-market Congress, something I never dreamed possible.

The new tea-party breed in Washington will unleash entrepreneurship and capitalism by holding back the government tide. In other words, folks, tea-party economics are very bullish.

An Interview with the Most Powerful Tax Man in Washington

Senate Republican Leader Mitch McConnell made a strong case against any tax hikes during my interview with him on last night's Kudlow Report. He also called for a permanent extension of the 2003 tax rates. So, while he can stop the Obama Democrats, does he have the Senate votes for extension? Should he compromise on temporary extension?



The interview begins at the 1:55 mark.

On CNBC's Kudlow Report tonight

Tonight at 7pm ET on CNBC:


IS THERE A BIG BANG TAX DEAL IN THE WORKS?

***Sen. Mitch McConnell (R) Kentucky



THE DOUBLE DIP IS DEAD.

- John Rutledge, Fmr. Reagan Economic Advisor
- Mike Ozanian, Forbes National Editor

THE MESSAGE OF BULLISH GOLD

- David Gilmore, Foreign Exchange Analytics partner
- Michael Purves, BGC Financial chief equity strategist

WHY IS $250,000 CONSIDERED RICH?

- Howard Dean, Fmr. Vermont Governor; CNBC Contributor; Fmr. Presidential Candidate
- CNBC’s Michelle Caruso-Cabrera

SAN BRUNO BLAST : IS THE NAT GAS INFRASTRUCTION FALLING APART?

- John Kilduff, CNBC Contributor; Again Capital LLC Partner

Please join us. The Kudlow Report. 7pm ET. CNBC.

The McConnell Tax-Rate Freeze

Sen. Mitch McConnell’s excellent floor speech Monday unleashed a political thunderbolt: The Obama plan for higher tax rates on the wealthy — including successful earners, investors, and profitable small businesses — is dead. At least before the election.

Mr. McConnell is submitting legislation to freeze all tax rates for a year. With the latest defection by independent Joe Lieberman, along with Democrats James Webb, Ben Nelson, Evan Bayh, and probably Kent Conrad, the Republican leader more than likely has the votes to block Obama. Harry Reid hasn’t even submitted legislation, nor has he scheduled any floor votes. So McConnell has the whip hand.

And the Republican leader nailed the president’s inner big spender by quoting an Obama remark that the so-called “savings” from taxing the rich would be spent on “better things.” So it would never be used for deficit reduction; it would be the government’s money, not the taxpayers. That’s the Obama philosophy.

But the abnormally high level of uncertainty that has plagued investors and businesses will continue. Where is tax policy really going?

Before and after the elections, the Senate GOP caucus and pro-growth Democrats can block any tax hikes. But can they pass an extension of the 2003 Bush tax cuts? The clock is ticking. The tax-cut program expires in 117 days (just about). Then the top tax rate goes up to 39.6 percent (actually 41 percent without exemptions). Capital gains go to 20 percent while the estate tax reverts to 55 percent. And dividends will rise back to 39.6 percent from 15 percent.

This is all harsh medicine, especially for investors.

Year-end tax selling is more likely as the tax cost of capital goes up and after-tax investment returns go down. The profits-driven stock rally, accompanied by incredibly low interest rates, has a ceiling.

Republicans are right to draw a line in the sand on tax hikes of any kind. They are also drawing a second line in the sand for government spending.

Should a Republican November landslide include both the Senate and the House, the odds of extending the tax cuts would improve, but the outcome might still depend on overturning an Obama veto. That’s tough to do if the president stays on the left rather than embarking on a Clintonesque trip to the center.

Mitch McConnell’s tax freeze is good politics and good economics. Legislatively, perhaps he’s thinking one step at a time. But the fate of the Bush tax rates is still very much in doubt until some big-bang spending-and-tax-limitation package can be worked out.

Bashing Bush and Boehner Won’t Work

Under pressure from a barrage of bad midterm-election polls, President Obama has gone on the campaign trail to blame Pres. George W. Bush for all our economic problems, and to bash House Republican leader John Boehner as nothing more than a Bush retread.

In Friday’s dreary news conference, Obama acknowledged that economic progress is “painfully slow,” and that voters may blame him for the economy. Yet he nonetheless continued to finger Bush “for policies that cut taxes, especially for millionaires and billionaires, cut regulations for corporations and for special interests, and left everyone else pretty much fending for themselves.”

“Millionaires and billionaires” has become Obama’s favorite phrase as he calls for tax hikes on the wealthy and renews his attacks on Bush. In Cleveland last week, Obama actually blamed the Bush tax cuts for the financial meltdown and severe recession. Now that’s a reach. A big reach.

While Mr. Bush made plenty of economic mistakes, his 2003 reductions of marginal tax rates led to more than 8 million new jobs in the next four and a half years. Under Bush, the unemployment rate dropped to 4.6 percent.

And almost all economists agree that the 2007-08 financial meltdown was a housing-bubble and credit event. It had nothing at all to do with cutting taxes.

Regarding John Boehner, Obama slammed the GOP leader eight times in Cleveland. He claimed “no new policies from Mr. Boehner,” saying the Republican leader’s philosophy “led to this mess in the first place: cut more taxes for millionaires and cut more rules for corporations.”

Well, none of this is going to work come November 2.

Take a good look at the latest Wall Street Journal/NBC poll. It is very revealing on these points.

Voters were asked, if Republicans win control of Congress, will they return to the economic policies of George W. Bush, or will they have different ideas to deal with the economy? The response: 58 percent said different ideas, 35 percent said the policies of George W. Bush. Voters were then asked, if Democrats maintain control of Congress, will they continue with the economic policies of Barack Obama, or will they have different ideas on the economy? The response: 62 percent said the policies of Obama, 32 percent said different ideas.

The poll also found that 56 percent of voters disapprove of Obama’s handling of the economy while 39 percent approve; that 71 percent disapprove of the job Congress is doing; and that 62 percent think it better that different parties control Congress and the White House. Overall, on the generic congressional vote, likely voters favor Republicans over Democrats 49 to 40 percent.

Clearly, Obama is barking up the wrong tree with his assaults on Bush and Boehner.

It’s the Obama agenda, especially on the economy, that has voters agitated. It’s a couple trillion dollars worth of big-government spending stimulus. It’s add-ons like cash for clunkers, cash for caulkers, and homebuyer tax credits. It’s the never-ending mortgage-default assistance. It’s two years of unemployment benefits. It’s more government-union bailouts for the states. It’s GM, Fannie, and Freddie. And of course, it’s Obamacare, which remains hugely unpopular.

Folks simply don’t think they got much for their money. And now they want to get their money back. They even want strict constitutional limits on the size, scope, spending, and taxing of the federal government, which has just made the biggest power grab they’ve ever seen.

The point is, your average Joe the Plumber in all those flyover states has probably barely even heard of John Boehner. This Boehner attack reminds me of the GOP’s futile attempt to demonize Nancy Pelosi in the autumn of 2006. Back then, nobody had much heard of Pelosi. But people voted the Republicans out because of overspending, bridges to nowhere, corruption, and the Iraq War.

Today, while the GOP is developing a platform that is expected out at the end of the month, voters seem to know that a nearly united Republican party opposes Bailout Nation, big spending and borrowing, Obamacare, and a new national energy tax. Republicans are far from perfect. But they have slowly developed a good message: Freeze spending, keep tax rates down, hold back the redistributionist government tide, help entrepreneurs, reward success, and create jobs and economic growth through the traditional American route of private-sector business, not government planning.

In the next seven weeks, if Republicans can stay on this message, they will win big.

On a Special Edition of CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

FREE MARKET 12-STEP PATH TO PROSPERITY:


***Larry's 3-policy game changers for Government Spending & Regulation

- Sen. Judd Gregg, (R) New Hampshire; Budget Cmte Ranking Member
- Sen. Byron Dorgan (D) North Dakota
- Rep. Jason Chaffetz (R) Utah

Plus…

A debate between former Vermont Governor Howard Dean and CNBC’s Michelle Caruso-Cabrera.

EPA ASKS "WHAT'S IN THE FRACKING FLUIDS?"
CNBC’s Hampton Pearson reports.

EXCESSIVE EPA REGULATION?

- Michael Brune, Sierra Club executive director
- John Kilduff, CNBC Contributor; Again Capital LLC Partner

MARKETS

- Bob Froehlich, The Hartford, Sr. Managing Director
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager

CNBC'S DIRTY DOZEN: COLORADO
CNBC chief Washington correspondent John Harwood reports.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Free Market Housing Fixes with FDIC's Sheila Bair

Earlier this evening I had the opportunity to discuss the idea of a free market housing fix with distinguished FDIC chair Sheila Bair. We focused on the need for tighter, more conservative lending practices.

It's the second edition of a weeklong series we're doing on Kudlow Report dedicated to my free market, 12-Step Path to Prosperity. Thursday night, we'll be focusing on the need for some serious tea party spending restraint from Washington.

If you'd like to read the transcript, click here.

On Tonight's Special Edition of The Kudlow Report

Tonight at 7pm ET on CNBC:

FREE MARKET 12-STEP PATH TO PROSPERITY:


OBAMA'S ECONOMIC PUSH
- CNBC’S Eamon Javers reports.

IS THIS A TURNING POINT IN CORPORATE TAX CUTS? SHOULD GOP SEIZE THE MOMENT FOR GOOD TAX REFORM? ISN'T THIS BULLISH?

- Rep. Jeb Hensarling (R) Texas

THE FREE MARKET HOUSING FIX: DO WE NEED TO GET GOVT OUT & LET FREE MARKET PRIVATE SECTOR RULE?

- Henry Cisneros, CityView Chairman & CEO; Former Mayor of San Antonio, TX; Former HUD Secretary
- Edward Pinto, consultant to the mortgage finance industry, fmr. executive VP & chief credit officer at Fannie Mae in the late 1980s

FIXING THE HOUSING MESS: SHOULD THERE BE TIGHTER, MORE CONSERVATIVE LENDING PRACTICES & QUALIFICATIONS?
-Sheila Bair, FDIC Chair

DO WE NEED FREE MARKET SHOCK THERAPY FOR HOME PRICES & SALES?

- Anthony B. Sanders, George Mason Univ. Distinguished Professor of Finance
- John Taylor, National Community Reinvestment Coalition President and CEO

TIME TO GET BULLISH ON THE STOCK MARKET?
- Jeffrey Kleintop, LPL Financial Chief Market Strategist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Obama Gets Write-Offs Right, Misses Mark on More Stimulus

It’s all midterm-election politics, but Obama’s last-minute idea for 100 percent tax write-offs for corporate investment is, in fact, a good idea.

He proposes a two-year window to incentivize businesses to bring forward their investments. From the standpoint of investment, it’s the right way to go. Perhaps Larry Summers now thinks tax cuts are the right way to go, too.

CEOs like Fred Smith of FedEx have argued for full cash expensing for many years, along with a big drop in the corporate tax rate itself. This is what Team Obama should have done in the first place: Slash business tax rates and accelerate investment-depreciation schedules.

Years ago, Gary and Aldona Robbins did work showing that accelerated investment depreciation gives the biggest bang for the buck — roughly $10 of new GDP for each dollar of faster tax write-offs for investment. Those write-offs, a lower capital-gains tax rate, and a cut in the corporate tax have been powerful economic stimulants in the past. Perhaps a Republican Congress in 2011 will go back to these business tax-cutting approaches. When businesses invest, they create new jobs. (Of course, any of these business tax provisions should be universalized for large, medium, and small companies.)

Meanwhile, Obama’s other proposal for $50 billion in infrastructure spending is a laughing stock. More failed spending stimulus. Think of it. I guess Team Obama had to put this in to please their union supporters who will get the Davis-Bacon wage rate rather than a true market rate.

And Obama’s infrastructure-bank idea is going nowhere. It’s like Fannie Mae for road building. But we already have Fannie and Freddie, and they’re broke. And the taxpayers own them. It’s a big political boondoggle.

So I guess Team Obama really is addicted to these big-government, big-spending, economic-planning ideas. They need a 12-step program to get off them. And that’s coming. It’s called the midterm elections.

On Tonight's Special Edition of The Kudlow Report

Tonight at 7pm ET on CNBC:

FREE MARKET 12-STEP PATH TO PROSPERITY:

HOW DOES TAX POLICY NEED TO BE CHANGED TO PUT AMERICA BACK ON THE 12-STEP PATH TO PROSPERITY?

- Howard Dean, Fmr. Vermont Governor; CNBC Contributor; Fmr. Presidential Candidate
- Dick Armey, Former House Majority Leader; Chairman of FreedomWorks.org

OBAMA'S SEPTEMBER PLAN
CNBC’s Hampton Pearson reports.

THE REPUBLICAN RESPONSE TO KUDLOW'S PATH TO PROSPERITY
House Republican Leader John Boehner joins us.

SHOULD THE CORPORATE PROFITS TAX BE ABOLISHED?

- Robert Reich, Fmr. Labor Secretary"Aftershock: The Next Economy and America's Future" author; CNBC Contributor
- Steve Moore, Senior Economics Writer for WSJ Editorial Board; "Return to Prosperity" co-author; Founder & former President of the Club for Growth

MARKETS: STOCKS & TAXES…EUROPEAN DEBT FEAR…GOLD HIGH

- Don Luskin, Trend Macro Chief Investment Officer
- Michael Farr, CNBC Contributor; Farr, Miller & Washington President

ARE VEGAS'S PROBLEMS OBAMA'S FAULT?
CNBC’s Jane Wells reports.

Please join us. The Kudlow Report. 7pm ET. CNBC.

The Business of America Is Business

Corporate profits are at all-time highs and bond rates in the Treasury market are virtually at record lows. That’s a good combination for stocks, and it helped trigger a 255 point rally in Wednesday’s trading. What’s more, a surprisingly positive read on the ISM August manufacturing report delivered a strong blow to the double-dip recession pessimism that has plagued investors for many months.

Without question, the jobs picture is going to remain cloudy. There’s just too much uncertainty over the economy and the tax-and-regulatory threats coming out of Washington. Businesses can’t be sure about the costs of hiring. Meanwhile, over in housing — our other weakest sector — an inventory glut threatens further price declines.

But make no mistake about this: Businesses, at least the publically owned ones, are in very good shape. U.S. firms scored a record $1.2 trillion in profits during the second quarter and are sitting on roughly $2 trillion in cash. Our private-sector companies are resilient, and they have recovered significantly from the economic plunge.

And while their hiring is still behind schedule, they have begun the process of investing in equipment, software, and other capital goods. Business investment in the June quarter rose 16 percent above year-ago levels. This is all to the good. Healthy businesses are crucial to the stock market as well as the overall economic outlook.

In fact, since 2001, business profits have doubled, even while the stock market dial has hardly moved. If Washington can just keep its paws off of business and let market processes work, firms will continue to prosper domestically and internationally and will eventually pick up their hiring.

I hate to sound too much like Calvin Coolidge, who after Reagan is my favorite 20th century president, but the business of America is business.

Yes, when second-quarter GDP came out last week, the revised 1.6 percent growth number was universally derided as a step on the road to a new recession. But not so fast.

In a blog titled “What Everyone Missed in the Revised GDP Data,” brilliant Washington economist Alan Reynolds noted that real gross domestic purchases, which are purchases by U.S. residents of goods and services wherever produced, actually increased 4.9 percent annually — a full percentage-point stronger than the first-quarter results. Reynolds blamed a government accounting miscue over falling import prices for a misread on the trade deficit that subtracted about 4 percentage points from GDP.

So import prices actually increased in the second quarter, which lends credence to the idea that the economy is doing better than folks think. And by the way, the bulk of those imports are being used for capital-goods investment, which is a good thing, not a bad one.

Smoothing out the quarterly ups and downs, the real economy is growing about 3 percent year-on-year, with the domestic economy rising by 3.7 percent. This is a tribute to the resilient and durable free-market system in America.

It’s a pity that Team Obama and the Democratic Congress had to waste nearly $1 trillion on ineffectual spending stimulus, temporary tax rebates, cash for clunkers, and temporary homeowner tax credits — all of which have probably slowed recovery and prevented equilibrium in key sectors. And that’s not to speak of our huge and burdensome future debt.

Which brings me to the regime change coming in the midterm elections. That’s another bullish factor. As we speed toward November, the Republican party looks set to publish an agenda of limited spending, regulatory restraint, and low taxes, while momentum is gathering to at least temporarily extend the Bush tax cuts of 2003.

And lo and behold, President Obama and his economic team apparently are talking about additional tax cuts of one kind or another. I’m not holding my breath. They are likely to go for temporary and targeted tax relief, the most ineffectual kind there is. They should go Reagan, by reducing marginal tax rates across-the-board for personal, business, and investor incomes. That’s what they ought to do — strengthen incentives to reignite risk-taking. But the Republican tide is rolling in so strong right now, we just might see Democrats turn to lower taxes.

All this is good for stocks. Using conservative earnings estimates, the S&P 500 looks to be valued at a historically low 11.5 times earnings. That comes to an 8.7 percent yield on shares, compared with only a 2.5 percent rate on 10-year Treasuries.

In other words, profits up, rates down, tax cuts may be coming. In the new political environment, year-end tax-selling by investors may no longer be necessary in 2010 to beat the Obama IRS in 2011.

Let’s have a little optimism for change.

On CNBC's Kudlow Report Tonight

Tonight at 7pm ET on CNBC:

MARKETS: WILL SEPTEMBER FIZZLE OR SIZZLE?

- Michael Farr, CNBC Contributor; Farr, Miller & Washington President
- Jim LaCamp, Macroportfolio Advisors Sr. VP, Portfolio Manager


WHAT IS THE OBAMA ADMINISTRATION CONSIDERING TO BOOST GROWTH?
CNBC chief Washington correspondent John Harwood reports from Washington.

IS A TAX CUT PACKAGE ON THE TABLE?
Rep. Mike Pence (R-Ind) will join us.

INSIDE THE FED WITH DONALD KOHN
CNBC senior economics reporter Steve Liesman reports.

IS THE DOUBLE-DIP DEAD?

- Christopher Whalen, Institutional Risk Analytics
- James Glassman, George W. Bush Institute Executive Director; Kiplinger's Personal Finance Columnist

FDIC 'TOO BIG TO FAIL' HEARING
CNBC’s Hampton Pearson reports.

IS AN OBAMA SEPTEMBER TAX CUT/STIMULUS SURPRISE IN THE CARDS?

- Dean Baker, Co-Director of the Center for Economic and Policy Research
- James Pethokoukis, Reuters Money & Politics Columnist

TEA PARTY CANDIDATE 'S STUNNING WIN OVER LISA MURKOWSKI
- Joe Miller, Alaska Republican Senate Candidate

Please join us. The Kudlow Report. 7pm ET. CNBC.