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Larry Kudlow Interviews Former Arkansas Governor and Presidential Candidate, Mike Huckabee, on Kudlow & Company (Transcript Included)

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DATE: August 13, 2007
NETWORK: CNBC
PROGRAM: "Kudlow & Company"
TIME: 5:30 PM ET

The following is the unofficial transcript of a CNBC interview with former Arkansas Governor and Presidential Candidate, Mike Huckabee, on CNBC's "Kudlow & Company" today at 5:30 PM ET. All references must be sourced to CNBC.

In the interview, Huckabee discusses his tax plan which would would create a new national sales tax dubbed the "fair tax" and would abolish federal payroll and incomes taxes.

LARRY KUDLOW, host: All right. Governor Mike Huckabee, welcome to KUDLOW & COMPANY. Congratulations on your strong second place showing in the Iowa straw poll.

Governor MIKE HUCKABEE: Well, thank you. It was a big day for us and I think it proved that the message is working and it's just a matter of now bringing the money in to keep us going.

KUDLOW: I want to focus on what a lot of people have told me, that you had substantial support from the fair tax group, that they were in Iowa, they were helping you, they were working phones, they were there at the rallies. It's a fascinating substory which I just got wind of today because it's not reported in any of the newspapers, including your front page piece in The New York Times. First of all, sir, was the fair tax crowd instrumental in getting you a second place finish?

Gov. HUCKABEE: I think they were very instrumental, and frankly, I think that's good because they know that I'm the one candidate who's not just willing to sign the fair tax bill, I want to go sell it. I believe in it. I think it would revitalize the American economy. I think it would do wonders to bring capital back to this country, rather than chasing it off the shores, and they know that I'm passionate and committed to it.

KUDLOW: Let me just walk through quickly, for our viewers who may not be familiar with the flat tax--the fair tax. It's a national sales tax and it has a single rate, is that right?

Gov. HUCKABEE: That's correct, and it eliminates all the taxes on productivity, which is really how we penalize America. We penalize it by taxing income, whether it's corporate or individual, taxing savings, capital gains, dividends, any type of earning. We essentially say that if you really work hard, if you take risk, we're going to really make you sorry you did it.

What we really would do with the fair tax is to eliminate taxes on productivity and have a simple consumption tax on items that are purchased new.

KUDLOW: What would the rate be? What would the single rate be, sir?

Gov. HUCKABEE: The rate would be 23 percent, which scares some people until they realize that you have, first of all, a 22 percent embedded tax in everything you purchase. Plus you would go to purchase things with your full paycheck and you wouldn't have all those taxes taken out of it, and you would have a completely transparent system that would be most importantly, taking care of that underground economy, illegals, drug dealers, pimps, prostitutes, gamblers would all be paying the tax, not just the working stiffs of America.

KUDLOW: Well, what about--what do you say to middle income people who might be paying the 15 percent income tax rate? They're going to go up to a 23 percent national sales tax, and on top of that, they probably have 5 or 6 percent local state taxes? So that puts them close to 30 percent. Sounds like a much bigger tax burden?

Gov. HUCKABEE: Actually, they're already paying about 33 percent of what they have when you figure in their payroll tax and all the other things that are taken out. Plus the prebate provision of the fair tax, which I think is the genius of it, I wish I'd thought of it, means that every person up to the level of poverty gets a refund at the beginning of each month, just like a Social Security check would come to you, and that way, you really have no tax on all the basic necessities. So the people at the bottom third of the economic spectrum, deliver the most benefit from the fair tax, about 13 1/2 percent. People in the middle income get the second biggest jump, and the people at the top end still get about a 5, 6 percent benefit. Everybody benefits and comes out better.

KUDLOW: Would this include--by the way, obviously, up in Wall Street, we're all worried about subprime credit and jitters in the stock market and so forth. You'd put a housing tax on, would you not?

Gov. HUCKABEE: But what you also do, though, is take all that embedded cost out of the purchase of a new house. And if you're buying a house that's already been taxed, you only pay tax one time. So whether it's a car, a house or anything else, one of the benefits of the fair tax, you don't keep taxing the same item.

KUDLOW: But would the interest deduction now in existence be repealed and removed so you'd wind up paying a tax on the value of the house, sales tax, and secondly, a tax on the financial interest transaction?

Gov. HUCKABEE: But what you really do is get a net benefit because of the way that it's structured. And the fairtax.org site, I think, gives a lot of the answers to some of those specific questions. But the reality is that every segment of the economy comes out better. It was designed by the leading economists from MIT and Harvard and Stanford University, Arthur Laffer, one of the economists that helped design it. Millions of dollars of research went into it. It's not my idea, I tell people I'm not the chemist, I'm just the pharmacist.

KUDLOW: Right.

Gov. HUCKABEE: I'm trying to dispense it.

KUDLOW: Why is it the National Retailing Federation is vehemently against this? Wal-Mart would wind up--just to use Wal-Mart, since it's our nation's largest retailer, they'd wind up being, in effect, the tax collector for the entire federal government. Never heard them say that they wanted that responsibility. What's your response to all the retail stores who don't like this idea?

Gov. HUCKABEE: Well, I've not heard for sure that they don't like it. They may not like some aspects of the...

KUDLOW: I've had the Retail Federation people on here.

Gov. HUCKABEE: OK. Specifically about...

KUDLOW: They're very much opposed to it.

Gov. HUCKABEE: Well, you know, I'm not sure why. Maybe they need somebody to explain it to them, because frankly, they'd come out with a financial windfall as do states, because they get a basis point for being the collection point for the fair tax. Prices don't go up on the shelf because you offset for the fact that you're not taxing the companies that produce the item.

That's where America struggles. We lose jobs to China and to Mexico because--and to Europe, because of a VAT that's not paid if it comes to this country, and therefore, if you're manufacturing in the United States, all those corporate taxes and payroll taxes add up to a pretty hefty chunk. And we're competing against people who don't have to pay it when they import their products to us.

KUDLOW: How about, just the last one, sir, you've been very kind, what do you do with the argument that says if we don't repeal the 16th Amendment, which was the income tax amendment, I think, about 1916 or some such, that you run the risk of having a European style story where we still have income taxes, and on top of that, you'd build this national sales tax, so we would be emulating, let's say, France, pre Sarkozy?

Gov. HUCKABEE: Well, I think the point is you do repeal the 16th Amendment. But what you really do is you also get rid of this incredibly complex, $10 billion a year industry called the IRS. It would cease to exist. And the most important thing, the 250 to $500 billion a year that we spend currently just complying with the tax code, now we can put it into product development, into employee benefits, into marketing. Imagine that much money turned loose in the economy. And the $10 trillion, Larry, that's parked offshore from American companies that have moved it to protect it, imagine that much capital coming back into this country.

KUDLOW: All right.

Gov. HUCKABEE: Nothing would stimulate the economy like that.

KUDLOW: We're going to leave it there. Governor Huckabee, interesting plan. I think we're going to hear a lot more about it in the days and months ahead. Congratulations on your showing in Iowa, sir.

Gov. HUCKABEE: Thank you so much.



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