Here’s the transcript from my recent interview with top Senate Republican Mitch McConnell. One of the key points he made from my perch is that he wants a broad-based budget deal, but absolutely no tax hike.
LARRY KUDLOW: Sen. Mitch McConnell, welcome back to The Kudlow Report, sir.
SENATOR MITCH McCONNELL: Glad to be with you, Larry.
LARRY KUDLOW: Let me just begin with this catastrophic Japanese story, the tremendous human toll it’s taking and, of course, the nuclear power worries too. First, will efforts be made in the Senate to help our friends in Japan?
SENATOR MITCH McCONNELL: Yeah. If it needs Senate approval, we certainly will be there for helping our friends in Japan. What a horrible environmental catastrophe they’re experiencing, the loss other human life, and all the rest. We’re gonna be there for them in every way possible.
LARRY KUDLOW: What kinda stuff is being discussed right now in the way of assistance?
SENATOR MITCH McCONNELL: I assume that our emergency services experts are interacting with the Japanese. I know they are. The USS Ronald Reagan is either there or on the way there, you know, which– ‘cause, apparently, they would like additional helicopter support in delivering supplies. We’re gonna do everything we can to be helpful.
LARRY KUDLOW: And, the issues of the worries about a nuclear meltdown in Japan, will that effect Senate policy? Will there be hearings held to look at our whole nuclear and our energy program in the wake of these Japanese problems?
SENATOR MITCH McCONNELL: Well, I think it’s important not to rush to a conclusion about a major American energy policy in the wake of a disaster. For example, we all vividly recall last summer the BP oil spill. One of my colleagues said, “You know, when an airline– when– when an airplane goes down, you don’t quit flying.” I mean, we need to try to learn from what happened there. But, to rush to conclusion about– what this means with regard to our– policy in the future for nuclear power, I think it’s premature.
LARRY KUDLOW: No shutdown of nuclear licensing and things of that sort?
SENATOR MITCH McCONNELL: Well, you know, it took us 30 years to get back on track after Three Mile Island. I expect that this will– produce some difficulty. I just don’t think we oughta make American domestic energy policy based upon something that happens in another part of the world. Well, we try to learn from the mistakes that were made, and apply them.
LARRY KUDLOW: Let me talk about American budget policy. You’ve recently said, “Not a single one of the 47 Senate republicans will vote to raise the debt ceiling unless some credible effort, unless something credible is done about our debt.” Can you expand on that? What, “something credible” would be necessary to vote for an increase in the debt ceiling…
SENATOR MITCH MCCONNELL: Well, first, let’s just talk about the situation. We have now a divided government. The American– public last November– decided– as one pundit put it, “Issue a restraining order against the actions of this administration over the first two years.” A divided government frequently has done very important things. Think of Ronald Reagan and Tip O’Neill. Fixed social security in ‘83. Ronald Reagan and Tip O’Neill did tax reform in ‘86.
Bill Clinton and the republican Congress did welfare reform in ‘96. And, Bill Clinton and republican Congress actually balanced the budget, believe it or not, in the late ’90s. This is a time to do important things. Our debt situation is extremely dangerous. We now have a $14 trillion cumulative debt, the size of our economy. We begin to look a lot like Greece.
Over and above that, we have over $50 trillion in unfunded liabilities in Medicare or Medicaid and social security, promises we’ve made that we cannot keep. This is an important time in our history to begin to get our fiscal house in order. And, the President– so far, is remarkably passive, just sort of sitting on the sideline. So, what I have said, to get back to your question, there are 53 democrats and 47 republicans.
Fifty-three democrats can vote for a clean debt ceiling increase if they want to. But, 47 republicans, I’m quite confident, are gonna insist that we use that opportunity, which is all about our debt, to do something important about our debt.
And, I’ve been trying to incentivize the President every way I can, to come to the table. He doesn’t have to lay it out publicly. We need to have private discussions and see what we can come up with that would be an important accomplishment for the country.
LARRY KUDLOW: But, to make it credible, I mean I’m gonna guess you have a couple of months. To make it credible, would you, for example, insist on any conditions from the White House to have republicans vote for a higher debt ceiling? Specific conditions—
SENATOR MITCH MCCONNELL: Well, I’m not gonna start laying out a potpourri of options. I think they know and we know what would be significant. And, we should be discussing which of those significant items should be added to the debt ceiling. Think of putting an ornament on a Christmas tree. Add it to the debt ceiling, as a condition for having bipartisan approval, of raising the debt ceiling. And, I’m not gonna get into the specifics now—
LARRY KUDLOW: How about a spending—
SENATOR MITCH MCCONNELL: but we all know what our—
LARRY KUDLOW: –limitation—
SENATOR MITCH MCCONNELL: –we all know what are problems are.
LARRY KUDLOW: How about a spending limitation? A number of republicans have raised this. Senator Corker has raised this, something like 20, 21 percent of GDP. If I’m not mistaken– your whip, Senator Kyl has raised it also, Senator Mike Lee and others. A spending limitation, a debt limitation, an entitlement package. It’s kinda hard to do in the next six or eight weeks. But, would those qualify as conditions—
SENATOR MITCH MCCONNELL: All of those are the kinds of things that would be considered significant by the markets, by the American people, and by foreign countries. And, we’re in the process, within the republican conference, of looking at statutory solutions. Senator Corker’s got a creative and interesting one. And, we’re also looking at a Constitutional amendment that would not be a good candidate for a debt ceiling ‘cause the President, under out Constitution, is not involved in a Constitutional amendment to balance the budget. He doesn’t play a role in that.
Entitlement reform. A lot of study has already been done. The President’s own entitlement debt reduction commission has done a lotta study over the last year w– whose– all of these issues have been studied thoroughly. What is lacking so far is the political will to tackle them.
LARRY KUDLOW: Senator Schumer and some others, I believe Senator Durbin also, they want to have a big package deal discussion. Spending cuts, entitlement cuts, and also taxes. And, I wanna ask you, down through the years, we’ve had these big, grand design deals. Are taxes on the table for such a deal?
SENATOR MITCH MCCONNELL: Taxes are not on the table. We don’t have this problem because we tax too little. We have this problem because we spend too much. And, I’ve made it clear, both publicly and privately, that as a result of last November’s election, tax increases cannot be considered as part of the solution to any of these problems.
LARRY KUDLOW: Are there any movements in the Senate Finance Committee to lower the business tax rate structure? President’s talked about this. He’s sort of making a charm offensive with business. A lotta people on Wall Street took notice of that. He’s goin’ to be a centrist. He’s got Bill Daley as his new Chief of Staff. Is the White House pushin’ for business tax reform? Is the Senate pushin’ for business tax reform? Are you pushing for business tax reform.
SENATOR MITCH MCCONNELL: Yeah, we’d like to see the American corporate tax rate be competitive with the rest of the world. And pretty soon, we’re gonna have the the highest corporate tax rate in the world. I don’t think that’s good for business. By the way, we all be– oughta be ratifying trade agreements, not just the Korea deal, but the Panama, Colombia deal as well. We oughta be doin’ all of those things. And I’m waiting to see whether this is just a rhetorical shift on the President’s part courting business whether he’s gonna back it up with anything real. And, I think doin’ work on lowering the corporate tax rate, passing trade agreements, all of that, would have reality match up with rhetoric.
LARRY KUDLOW: Speaking of rhetorical shifts– President, in his news conference Friday, last Friday, said he was in favor of domestic drilling, domestic oil and gas production. Do you believe him?
SENATOR MITCH MCCONNELL: Well, I remember one previous President said, “Watch what we do, not what we say.” And, it is no question this administration has made it tougher to drill both on and offshore in this country. It’s harder to get permits. We’ve had to suffer through an endless moratorium in the gulf after the BP spill that is totally unpopular all across the southeastern United States because it’s costing us jobs.
One of my colleagues, Senator Vitter, on the floor of the Senate actually read the list of rigs, named them, that are now– that used to be in the gulf, that are now in places like West Africa and other places. They’ve been moved around the world, and the jobs have gone along with them.
So, the question is not what the President’s saying, but what he’s doing. We need to quit this anti-production– view that’s been pervasive. It needs to stop. The anti-pro– production view that’s so pervasive in the administration needs to change. He’s the President, he can change it if he wants to.
LARRY KUDLOW: Do you blame him for $3.57 gasoline at the pump, which many economists are saying will slow the economy and raise the inflation rate? Do you blame the—
SENATOR MITCH MCCONNELL: No, I’m—
LARRY KUDLOW: –President?
SENATOR MITCH MCCONNELL: –not gonna lay that just on his shoulders. But, he is you know, in terms of domestic production, this has been an administration that’s very hostile to domestic production, not just in the gulf, but in Alaska and other places, to the extent that we could reduce our dependence on foreign oil. I think we all agree that would be good. But, we’re not gonna do that any time soon with the proliferation of electric cars. It’s just not gonna get the job done. So, we need to be straight with the American people. And, that involves opening up more of our substantial domestic supplies of both oil and gas.
LARRY KUDLOW: Do you blame Fed Chairman Ben Bernanke for printin’ too many dollars? Value of the currency’s goin’ down. Food commodities are skyrocketing. Energy commodities are skyrocketing.
SENATOR MITCH MCCONNELL: Well, I’m not an expert on Fed policy. But, anyway, we were just talking about gas prices. Nothing will send the cost of everything up faster than an increase in gasoline prices. Just a penny up, you know, will cost us hundreds of millions of dollars a year. Everybody’s very sensitive to gas prices in this country.
LARRY KUDLOW: When you heard PIMCO’s Bill Gross, the big investment manager out west. He says he’s pulling out of the U.S. Treasury Bond market. What kind of signal do you take that to be? What do you and the Senators feel that kind of negativism toward bonds pushes the deficit reduction, pushes the budget issue to the front page, and to the front of your agenda? Are we losing time on this? If too many Bill Grosses pull out, who’s gonna buy our debt?
SENATOR MITCH MCCONNELL: Well, I think the message is this is a serious problem, and it’s a problem now. I mean, you get the impression the President hopes to finesse this past the next election. That’s fine if it’ll wait that long. There are many experts who come and talk to us here in the Senate who believe we need to act, and act now.
And, as I’ve suggested, Larry, I think the time to act is– in connection with the debt ceiling. We all know the kinds of actions we can take that would be viewed about the bond market, for example, as an indication the American government is gonna get its house in order. We know what the steps are that need to be taken. We need to reach out and grab them with both hands, and pass them.
LARRY KUDLOW: All right, Senator Mitch McConnell, Republican Leader, we appreciate it very much, sir.
SENATOR MITCH MCCONNELL: Thank you, Larry.
LARRY KUDLOW: Great. I really can’t thank you enough.