What follows is a transcript of my interview this morning with Sen. John McCain on the investor class and the stock market. Big Mac is talking tax cuts on capital gains, businesses, and individuals. There’s no question that he is energized. But politically he is still running even with Obama among investors. That is not good. Is there time for Sen. McCain to break through and run up his margin with this crucial voting block?
Larry Kudlow: Let me go back to the first question, which you were beginning to answer. We’ve had this terrible stock market slump. Some say $3 trillion dollars worth of wealth have been lost by investors in the investor class. And I was asking, and I think you were answering, what is your plan to create some recovery in the stock market?
Sen. McCain: Keep taxes low, cut spending, create jobs with alternative energy, including nuclear power plants, including drilling offshore, wind, tide, solar. Free us from our sending $700 billion or whatever it is across to countries that don’t like us very much. Free up credit. Larry, I’ve been meeting with a lot of small-business people, and they’re having great difficulty getting lines of credit. This is something we’ve got to free up. Now, we have given the banking, the banks and other institutions the kind of infusion they need. It’s time they pass that on to small businesses who say they can hire. They’ve got business, but they just haven’t got the line of credit.
But make sure that everybody knows that we’re going to keep taxes low. We’re not going to raise taxes. We’re the creator of business and the engine of our economy and small business, Sen. Obama’s proposal would tax half of all small business income, some 16 million jobs in America would be at risk. And then you put on top of that, he will force his mandated health care plan on small businesses, their employees, and their children. It’s not good for America.
Kudlow: Just on the credit piece that you mentioned a few moments ago, have you and your campaign been following the improvement in the LIBOR credit market in London and the commercial credit markets here in New York? It looks like the Treasury plan is beginning to work. That may be a positive sign. Do you follow those areas?
McCain: Yeah, I do, and I get updates all the time. One of the areas that I’m still very disappointed in, though, Larry, and you may not agree with me, we’ve got to go in and get these home mortgages bought and give people mortgages they can afford so they can stay in their home. Look, I’m in Ohio. Homes are being foreclosed everywhere. A lot of these people, it’s their primary residence, could stay in their home if they had a new mortgage at the new value of their home, at payment levels they could afford. That is the slow — one of the slowest parts. I think it’s the slowest part right now. Keep people in their homes. If they can’t realize the American dream and stay in their homes, then obviously, the rest of this equation is hard to complete.
Kudlow: Let me swing back to the investor side. There are about 100 million investors, according to the Federal Reserve survey. And interestingly, in recent national elections, they’re a huge voting block, almost two of every three votes cast are cast by people that own stocks either directly or indirectly. And yet, sir, you very, very seldom mention investors on the campaign trail. Why is this?
McCain: Well, I try to talk about them more often. A lot of the people that come, frankly, are people that are having trouble staying in their homes, keeping their jobs, etcetera. But I think it goes back to all this business of Sen. Obama’s view of “fairness.” When Charlie Gibson said, why would you want to raise capital-gains taxes when you know it will decrease revenue? And he said in “fairness.” And he told Joe the Plumber — Joe the Plumber got the message through better, what we’ve been trying to do this whole campaign. [Obama] wants to “spread the wealth around.” That takes from the investor class. That takes money from one group of Americans and gives it to another.
Now that signal has been very clear. And I think people ought to pay attention to it, because it’s been tried before in other countries, and policies of other left-liberal administrations. It doesn’t work, and it’s bad for America. We want to encourage the investor class, and that means capital-gains and dividend taxes are low.
Kudlow: You’ve just unveiled a new tax cut on capital gains. Can you tell us about that? Because in some sense, that’s probably the most important investor class tax.
McCain: It’s the most important in many respects, Larry, and we want it low and we want it lowered. Every time — there’s one tax that there’s no argument about, that every time it’s been lowered since Jack Kennedy, we have seen an increase in revenues. Now, why anybody would argue, as Sen. Obama does, that we need to raise it, even if it’s — of course, the amount needed to raise it is varied with whatever poll he’s taken — but the point is that we want to lower it and keep it low and encourage investment, especially now in America in these difficult times.
Kudlow: But senator, what is — the current law rate is 15 percent.
McCain: Yeah, yeah.
Kudlow: You’re taking the cap-gains rate down to what?
McCain: First down to 10 percent, I would like to see it, and gradually even make it lower. Look, why should we tax people’s gains twice? Why should we tax them twice, okay? They make an investment, they should be able to get their returns on their investment. And capital gains is obviously — low capital-gains tax is probably the greatest incentive for investment that we have in America today. And so, look, I’ll be glad to listen to smart people like you, Larry, but the worst thing we can do is tell people we’re going to raise it, and that, obviously, would chill investment in America, right?
Kudlow: Well, with your lower capital-gains tax, which in a recent speech you said 7.5 percent for two years, are you surprised, though, that respected pollsters like Scott Rasmussen or Investors Business Daily are still showing you running neck and neck, even with Mr. Obama? Back in 2004, President Bush beat John Kerry by 11 percentage points among investors. Now, you’ve got a lower cap-gains tax. Mr. Obama proposes to raise the cap-gains tax from 15 percent to 20 percent. Except you’re still running even in the polls. Can a Republican win running even among investors? And why don’t you think your message on capital gains has resonated with a bigger margin among investors?
McCain: I’m not sure, except obviously, when [Obama] broke his word that he would take public financing if I also did, he signed a piece of paper, that obviously, he’s had a huge money investment. Look, I’m a 7.5 percent — I’d like to keep it permanently at 7.5 percent. Right now, we need more investment in America and in the stock market and in businesses and investment than ever before in these difficult times. So, it’s pretty clear that if we keep them low, we will provide another tool for encouraging investment. Look, we are — I am so happy we are where we are. I see a level of enthusiasm out here in this campaign, Larry, that is remarkable. I haven’t seen this level of enthusiasm before. I’m very optimistic, and we’re coming from behind. I’m the underdog. That’s where we always like to be. But we are within margin, and I’m very happy where we are.
Kudlow: Another really important tax for the stock market investors, of course, is corporate profits. Profits are the mother’s milk of stocks, as I have said from time to time. You’ve proposed to lower that from 35 percent to 25 percent. Sen. Obama says the other day, that’s merely another huge and permanent tax cut for corporations, including $4 billion for the big oil companies, but it is no help for workers. Would you react to Mr. Obama’s criticism of your corporate tax cut?
McCain: He doesn’t get it. Corporate tax rates in America are the second highest in the world. Japan is only higher. Ireland has 11 percent. Business — I like to call them business taxes, because that’s what they really are, because they’re businesses and they create jobs and they create employment. And when businesses can go anyplace in the world, where are they going to go?
Look, I can name you Fred Smith of FedEx, Meg Whitman, other CEOs who will tell you, when they have a choice to go around the world and pay less in taxes where they can invest more and increase businesses and jobs, they’re going to do that. Obviously, they want to stay in America. And they want to create jobs in America, and they will. But we want to give them the incentive to do so. And lowering the business tax, the corporate taxes, in my view, they should be lower than 25 percent. Why is it that we’re the second highest in the world, when 20 or 30 years ago, we were amongst the lowest in the world? It’s not an incentive to businesses and jobs in America. It shows, frankly, that Sen. Obama just doesn’t get it.
Kudlow: You said yesterday or the day before when you were in Miami, Florida, the Democratic Congress is going to remove tax incentives or tax preferences for 401(k) accounts. Of course, that is a huge investor issue. What did you mean by that? What is the plan that Democrats want to take away from 401(k)s?
McCain: Well, that’s exactly what they’re saying. And Barney Frank, who is powerful, chairman of a powerful committee in the House, said we’re going to raise taxes and we’re going to increase spending. That’s exactly the wrong thing to do in the economic difficulties we have. How did we get into this ditch? We ran up a $10 trillion deficit on our kids and half-a-billion-dollar debt to China. So, obviously, they want to take the 401(k)s and use that money to give that to the government to spend, rather than people, and I think that’s very dangerous disincentives to savings, which is exactly the cause of one of our problems, as we all know.
Kudlow: Last one, senator, and I appreciate your time very much. Americans have an innate sense of optimism and confidence about stocks and the economy. The Rasmussen poll shows 73 percent believe stocks will be much higher five years from now than they are today. Is there a way for you in the closing days of this campaign to appeal to the innate sense of optimism that Americans have? Is there a way for you to connect with the investor class?
McCain: Well, I hope we’ve connected with the investor class by them examining our plans as we come closer to the election. But I also have to tell you, Larry, the people who want to invest are Joe the Plumbers of this world who want to own their small business. They want to employ people, and they want to invest in their futures and in the stock market and make investments — 401(k)s, IRAs, and others — so that they could ensure their retirement and their future. And Joe the Plumber was able to do something that we hadn’t been able to do this whole campaign, and that is articulate the reason why he doesn’t want to see his taxes raised so that he can use it to buy a business and create jobs and to take care of his and his family’s future. That’s what this campaign is boiling down to, and that’s why we’re getting closer and closer, my friend.
Kudlow: All right, Sen. McCain, thank you ever so much for sharing your time. Good luck in the rest of the campaign, sir.