CNBC "The Kudlow Report" - Transcript

Interview

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MR. KUDLOW: A short while ago, I spoke with Senate Republican Leader Mitch McConnell of Kentucky, and I began by having him react to something Senator Shelby said on CNBC earlier today.

(Begin videotaped interview.)

SEN. RICHARD SHELBY (R-L): (From videotape.) A 180-degree turn would be to shelf this stimulus and come with a financial package, private and government, to clear the toxic assets off the banks, to make the banks transparent, where we'd get a lot of private investment. It would work for our economy.

SEN. MCCONNELL: I think the first amendment we're like to offer to the Senate version of the so-called stimulus package next week will go right at the housing problem. Look, you know, the one thing that's unusual, this is a time when conservative and liberal economists all think we ought to do something. The question is, what? But if you look at the House-passed bill that didn't have a single Republican supporter, it was almost a billion-dollars spending bill.

I agree actually with what Speaker Pelosi said last year about stimulus packages. They ought to be timely, temporary and targeted. This one may be timely but it's certainly not temporary, and it's certainly not targeted.

MR. KUDLOW: Well, I appreciate that, but I want to come back to Mr. Shelby's point because Wall Street is really hanging on tender nails, tender hooks about this potential bailout. Do you have a thought, sir, on a government-backed bad bank that would buy toxic assets from the troubled banks that seem to be clogging up the credit system?

SEN. MCCONNELL: Yeah. You know, I'm somebody who supported the original financial rescue package. I believe that the financial rescue effort is appropriate. I do think that industry, because of the nature of our credit system, is different from other industries. And I don't support, for example, sort of willy-nilly the government picking and choosing various industries to live or die. For example, I didn't support the automobile bailout by the Bush administration.

But I'm open to discussions of second efforts with regard to the financial sector. I'm pleased to hear that Senator Shelby may be as well. And we'll have to see what the administration recommends.

MR. KUDLOW: There's a story in The Journal today the Obama team may have to ask for as much as $2 trillion for new TARP money maybe for this government bad bank, maybe for a myriad of other things. If you think about it, sir, that would be $2 trillion of bailout money on top of the $1 trillion stimulus package, which I think is why Mr. Shelby and others today are saying, hey, let's slow down this stimulus package, let's wait a month or two. What do you think about that? What if you're faced with another $2 trillion in TARP-related money on top of a poorly conceived stimulus package of 1 trillion (dollars)?

SEN. MCCONNELL: And you know what illustrates your point even better? Before we even start counting either the second tranche of the TARP or this stimulus package we're considering now, our regular deficit this year is already going to be above $1 trillion. I mean, you know, this is eye-popping deficits that we're looking at. And I think we ought to pay some attention to them, particularly with regard to this so-called stimulus package that is going to squander an enormous amount of money on things that won't make much difference, frankly, in terms of stimulating the economy.

MR. KUDLOW: Well, so do you agree -- Martin Feldstein, who was a supporter of stimulus, pulled back today in the pages of The Washington Post. Former Clinton economic and budget adviser Alice Rivlin said the same thing before the House Budget Committee yesterday. They're both saying, these are two esteemed economic advisers, they're both saying delay the stimulus package. Would you, as Republican leader, adopt a position that it is time to delay the stimulus?

SEN. MCCONNELL: Well, if it's going to take the form that I think it's going to take, we ought not to pass it. And I guess that's another version of delaying it. We should not pass this almost $1 trillion spending bill. I think it will have little or no impact on improving our economic situation. With regard to what future requests may be made with regard to the financial sector, we don't know yet. But you asked some of the questions about the speculation that's going on already --

MR. KUDLOW: I mean, how can you do the one without knowing about the other? I guess that's kind of what it boils down to.

SEN. MCCONNELL: Yeah. Well, I don't think there's any chance I'm going to be supporting this stimulus package. I think it's an almost $1 trillion spending bill that will make little or no difference. So I certainly agree that we ought not to do this particular version of the stimulus.

MR. KUDLOW: So at this point, if I just heard you correctly, you will not support the stimulus package.

SEN. MCCONNELL: No. If it were modified in such a way to go straight at the housing problem which is a part of what I heard you say Senator Shelby said on CNBC earlier today, then, you know, I might have a different view. If it had more immediate tax relief for both businesses and individuals that went straight into their pockets immediately, I might have a different point of view. I mean, in the end, my vote is going to be determined by what it looks like. And the version that came out of the Senate Finance and Appropriations Committee doesn't look like anything I'm going to be able to support unless it's changed dramatically.

MR. KUDLOW: I noticed Senator John McCain, I believe last Sunday, and, of course, Rush Limbaugh in The Wall Street Journal today, both of them want to slash the corporate tax rate as a pro- recovery measure. We will be talking to FedEx CEO Fred Smith who also is a strong advocate of corporate tax reform. Would you insist on some kind of corporate tax reform? I think Jim Bunning is talking about that as well as others in your caucus.

SEN. MCCONNELL: Yeah, it would be a good idea. You know, whether you can get a Democratic president and these heavy Democratic majorities in the House and Senate to do something like that is highly questionable. But would it be good for the country? Would it help American business which now, I think, has the second-highest corporate tax rate in the world? You bet it would.

MR. KUDLOW: Let me ask you another one. In both the House bill and I think one of the markups for the Senate stimulus bill, there's a buy America provision, okay. Any of the infrastructure that uses steel it's got to be American steel, it's got to be American iron. I heard today the textile trade groups want this. Wouldn't buy America just be a protectionist measure, it might backfire, we might not be able to get our exports overseas if other countries come back and throw up barriers? What do you make of this buy America? Is that a bill stopper right there?

SEN. MCCONNELL: Well, it's certainly not a good idea as a general proposition to do that kind of thing. There was a Canadian parliamentarian down here outside the Senate today lobbying against it. So it's certainly gotten the attention of the Canadians. And what you'd have to worry about is just how much it would drive up the price of everything in this country. I think those kinds of protectionist measures are very, very troublesome as a general proposition.

MR. KUDLOW: Now a final one, sir, a political question, if I may. No Republicans voted for the stimulus package last evening in the House. You yourself said in this interview you're not ready to vote for this thing, so you're against it. Is there a political risk now for the Republican Party? Is there a rebuke to President Obama who has reached across the aisle on a number of occasions? What are the politics here? Do you risk a backlash against the GOP?

SEN. MCCONNELL: I don't think so. I don't think President Obama would privately say he was very happy with the form this particular stimulus package is taking. I think it's the House and Senate Democrats running amok. It's sort of Nancy Pelosi and Harry Reid's version of what ought to be done. And I think, you know, the president, obviously, will swallow it. But I don't think it met the principles that he was looking for.

For example, Larry, he said the package ought to be 40 percent tax relief. The House package, I think, is about 20 percent tax relief.

MR. KUDLOW: All right. Senator Mitch McConnell, we appreciate your time. Mr. Leader, all the best.

SEN. MCCONNELL: Thank you, Larry.

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