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CNBC TRANSCRIPT: REPUBLICAN PRESIDENTIAL CANDIDATE AND FORMER SPEAKER OF THE HOUSE NEWT GINGRICH ON CNBC'S "THE KUDLOW REPORT" TONIGHT

WHEN: Today, Thursday, December 29th at 7pm ET

WHERE: CNBC's "The Kudlow Report"

Following is the unofficial transcript of a CNBC interview with Republican Presidential Candidate and Former Speaker of the House Newt Gingrich tonight at 7pm ET on CNBC's "The Kudlow Report." All references must be sourced to CNBC.

LARRY KUDLOW, host: Joining me now is former Speaker of the House Newt Gingrich, obviously a key presidential candidate. The Republican caucuses in Iowa just a few days away.

Mr. Speaker, welcome back to the show. We appreciate your time very much. And I just want to begin with some politics, sir, if I may. Some of the latest polls in Iowa showing you falling. You've dropped to fourth place. I want to ask you, can your campaign survive a fourth place defeat in Iowa?

Former Representative NEWT GINGRICH: Well, I think, first of all, the most recent poll just came out today at noon, and it indicates that it's a three-way tie for the top between Romney, Ron Paul and me, with, I think, Santorum in fourth place. And I think that that kind of--we're all somewhere in the middle of the hunt. There was a wave of about, oh, 6 to $8 million of negative advertising, and I was kind of amazed I was still standing when it was all over. But it now looks like we've done three telephone town hall meetings, we've had 32,000 Iowans in those meetings. We'll be doing five more telephone town hall meetings between now and the caucus, in addition to campaigning across the state, hitting 22 cities during this bus tour. And we're talking about economic prosperity and growth and getting a tremendous reaction. So I think we'll be right in the middle of the hunt, and I think we'll come out of Iowa with enough strength to go to New Hampshire and we'll come out of New Hampshire with enough strength to go to South Carolina. And I feel pretty confident that we'll win South Carolina because I don't think that a Massachusetts moderate is going to play very well in South Carolina.

KUDLOW: Well, I figured you'd get the Massachusetts moderate in there, and of course, I'd like to expand on that for a second. Mr. Romney is saying that you "I Love Lucy" in a chocolate factory because you couldn't get on the ballots in Virginia. So where does this lead--does this put both of you off message? How do you reconcile this fight you're having with Mitt Romney?

Rep. GINGRICH: Well, look, I think that probably we end up being the people who slug it out for a month or two for the party to decide who the nominee is. I represent, as you know, a supply side Jack Kemp, Ronald Reagan, tax cut, smaller government conservatism that I've represented my whole career. And the governor was--described himself as a moderate when he was in Massachusetts. And I think that people are going to have to decide do you want an aggressive, robust, free-enterprise approach. For example, I propose zero capital gains tax to bring hundreds of billions of dollars of investments into the United States. He proposes to cap his capital gains cut at a $200,000 income level. Now, as you know, that makes economically no sense at all because it means you don't get any of the excitement, any of the incentives for really big investments that you need to get the economy growing. So I think we'll have a principle debate over the next two months over whether a supply side Ronald Reagan approach, the one I advocate, is the one we should follow, and this is why I was so thrilled to have Art Laffer come to Iowa to endorse me because, as you'll remember because you were there, Art Laffer, along with you and Jude Wanniski and Richard Rahn and others, were key developers of Reagan's economic program and of supply side economics as a model.

KUDLOW: All right. You're in The Wall Street Journal with an op-ed piece. "Reagan had the recipe for success, let's follow it." You're talking about your flat tax plan right now, you're launching into it on this interview. Is this going to be your closing argument in the remaining days in Iowa? And, Mr. Speaker, I'm compelled to ask you, will you stay on message? Can you mount the discipline? A lot of people are saying you got off on this tangent with federal marshals hauling Supreme Court judges before Congress. It didn't help you, it probably hurt you. Is this your closing message, the supply side message?

Rep. GINGRICH: Well, my closing...

KUDLOW: Will you stay on this?

Rep. GINGRICH: Well, my closing message at every single event I've been at for the last three days as been that we need jobs and economic growth. I've outlined both our jobs plan, but I also point out history. I was a very junior congressman working with Jack Kemp and you and Ronald Reagan when we developed the first wave of real change which led to millions of new jobs in 1980s. As speaker of the House, I came back after two tax increases had stopped the economy. And we re-enacted the Reagan program once again when I was speaker, and we created 11 million new jobs, unemployment dropped to 4.2 percent. We had the largest capital gains tax cut in history. And so I tell folks, "I have done it before, I've been part of a team that did it before, we can do it again." And closing on jobs and economic growth is going to be the heart of my campaign, not just here but throughout the spring. I think this economy's fragile enough, somebody ought to be talking about the need for us to focus on creating jobs and economic growth.

KUDLOW: Last night on the show, Mitt Romney's top policy research guy attacked your 15 percent flat tax plan. He said it's way too complex. He said it's totally political. He said it is not going to grow the economy. What's your response to this Romney attack on your plan?

Rep. GINGRICH: Well, first of all, the flat tax part of it, for individuals, is one that Steve Forbes has helped develop over a 20-year period and is modeled, as you know, what Hong Kong has been doing for a generation. In Hong Kong, you either can keep the current tax code with all of its deductions or go to a single page. You put down the amount you earn, the number of dependants and you pay 15 percent. Now, we think the American people should be allowed to choose which of those two they want. But I would say that the zero capital gains, 12 1/2 percent corporate tax rate, 100 percent expensing for all new equipment so it could be written off by a farmer, a doctor, a factory, a business in one year, abolishing the death tax permanently, those are the real drivers of economic growth. When you combine them with deregulation by repealing Obamacare, repealing Dodd-Frank, repealing Sarbanes-Oxley, replacing the Environmental Protection Agency with a brand-new, commonsense environmental solutions agency, and modernizing the Food and Drug Administration so we can move knowledge from the laboratory to the patient faster so that we can lead the world market in medical supplies, which is the biggest part of the world market in the future, all those things combined together with an American energy plan, we should be able to create millions of new jobs very rapidly.

KUDLOW: But let me come back to this criticism that your plan is actually rather complex because, sir, the Tax Foundation, the nonpartisan Tax Foundation, makes a similar critique. They give your plan a C plus. Huntsman gets the best marks for his modified flat tax. He gets a B plus. Now, Romney gets lower than you. Romney doesn't have a tax plan, he gets a C. But, look, here's the Tax Foundation criticism. You keep a lot of the deductions. You keep the home mortgage interest deduction, you keep the charitable deduction, you keep the earned income tax credit. You keep most of the business tax credits, and you have a $12,000 per person family standard deduction. In other words, you're not really broadening the base. The bottom half of the income scale will still pay virtually no taxes. And the flat tax option you've proposed doesn't kick in for several years. How do you react to those criticisms of your plan?

Rep. GINGRICH: Well, first of all, I'm not in the business of raising taxes. So the fact that you just pointed out--you're right, I'm not going to go out and try to raise taxes on the bottom half of the income ladder. What I'm want to try to do is create enough jobs that the bottom half of the income ladder rises in income and as they rise in income, they'll pay more taxes. I'm very committed to having people have an opportunity to climb the ladder of success once again. If you go back and look at the Reagan years, as you'll remember because you lived through them, the fact is that the bottom part of American life was dramatically better off at the end of the Reagan years. If you look at the impact of our welfare reform when I was speaker, two out of three people went to work or went to school. We had the lowest rate of child poverty in American history by the end of that period because their parents were learning how to work and learning how to create a job. My goal is to have everybody at work, and that's the best thing you can do, I think, is to have everybody have a paycheck rather than a food stamp. And that, in my mind, will then move them into paying taxes as they rise in income.

KUDLOW: Do you think Mitt Romney is a supply sider? Mitt has not put out a tax reform plan. His guy last night said they won't have a tax reform plan until after the election, which they presume they will win. Do you think Governor Romney is a supply sider?

Rep. GINGRICH: Well, in Massachusetts, he raised taxes on business. He called them fees, rather than taxes. But the businesses had to pay them, and so they were taxes. His track record has been one of bigger government, more bureaucracy, higher taxes and less job creation. So I think he's a very standard establishment moderate who doesn't want to break out of the intellectual barriers of the left in Washington and be bold about really creating jobs.

KUDLOW: I notice in your plan this morning in The Journal you talk about a strong dollar and you want to link monetary policy to some sort of commodity price rule. You also mention on the campaign trail that you'd like Steve Forbes to be your Treasury secretary. Mr. Forbes, of course, is not quite there yet, Newt. He is stumping for Governor Rick Perry. What's your response to the Forbes stumping for Perry? Would you really nominate Forbes? Forbes likes the strong dollar, but he's not on to the Gingrich side yet.

Rep. GINGRICH: Look, I'm not going to go run around and say, you know, that I'm going to pick people based on who they were for in the primaries. I gave Steve as an example. I was asked a very good question, `What are the kind of people you'd want at the Federal Reserve, that you'd want at Treasury? You know, what are the kind of folks you'd like to have in your administration?' as a way of indicating the boldness and the risk-taking and the desire for real change. Steve's an old friend and a smart guy. There are five or six other guys in the same league. You look at somebody like Lew Lehrman, for example. If you start thinking boldly about the Fed and you start thinking about somebody who has really studied gold his whole career, who understands the idea of a strong dollar very, very well. All I'm suggesting is you want--you want activists with a strong intellectual background who are prepared to take on the Washington establishment. That's why I mention John Bolton, for example, as a possible secretary of state. These are not job offers, they're examples of the kind of people you'd look for. And I would say that, frankly, I like Rick Perry a lot. I mean, Rick's a very close friend. I wrote the forward to his last book. I'm hoping that if he doesn't--you know, if he ends up with me as the president that he'll help lead the effort to apply the 10th Amendment across the country and help lead the governors in really returning power to the states and getting it out of Washington.

KUDLOW: Let me just go after some of the other candidates. Michele Bachmann has just lost her top Iowa guy, a state senator was at the head of her campaign. He has jumped ship to Ron Paul. I want to ask you, what kind of a threat to your candidacy is Ron Paul, who is running even or ahead of you in most of the polls?

Rep. GINGRICH: Oh, I think in the long run that Ron Paul's not a very serious potential to be president because the American people aren't going to elect as a commander in chief somebody who does not believe that Iranian nuclear weapons are a direct threat to us. They're not going to elect somebody who believes in legalizing drugs. Dick Morris said last night on a show that he thought, on five different major issues, he was more liberal than Barack Obama. And I think you have to look at all this. Ron Paul is a protest candidate. He's a serious protest candidate. I think he sincerely believes what he says. But if you look at his total program, I think it is virtually impossible for him to be nominated by the Republican Party.

KUDLOW: All right, Mr. Speaker, I'm going to leave it there. We know you're busy. We wish you all best of luck on the campaign trail. Thanks for coming back on THE KUDLOW REPORT, sir.

Rep. GINGRICH: Great to be with you, Larry.

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