LARRY KUDLOW:  Alright, joining me now is Senator Evan Bayh, Democrat from Indiana. Mr. Bayh, welcome back to the program, sir.

SENATOR EVAN BAYH:  Good to be back, Larry, and happy to hear that you’re back on your medication and no longer thinking about running for public office.

KUDLOW:  I’m going to take that as a positive. Thank you anyway.

Let me ask you this, just briefly, this bonus tax that ripped through the House at 90%, and there were rumors about a Senate bill at 70%. So many of your colleagues told me today, while I’m down here talking to them, that it’s dead in the water. What is your take on it—is it in fact dead in the water?

BAYH:  My take on it, Larry, is that people are still upset about the bonuses, but are going to look for a better way than adjusting the tax code to try and deal with the problem.

KUDLOW:  Alright, so you think the tax thing—actually, Tim Geithner has a better remedy. He would take it out of their operations, and he would take it out of their next $30 billion TARP tranche, which I always thought was a better remedy, certainly than a 90% tax rate.  Mr. Bayh, you’ve been quoted, you’ve been on a lot of the news shows, you’re not happy with President Obama’s budget, and as I understand it--don’t let me put words in your mouth, but as I understand—you don’t want a 50-vote majority—so-called reconciliation—to deal with the budget and tax issues, healthcare, and then cap-and-trade, and card check: are you in revolt, sir?

BAYH:  If I’m in revolt, Larry, there is no revolt. You’ve mentioned a lot of issues.

First, I haven’t expressed an opinion about the president’s budget, and Kent Conrad just presented what the Democratic leadership is going to come forward with as their budget today, so we haven’t had a chance yet to analyze all the details. I did vote against the omnibus spending bill, as you know, because I thought that a bill that was about eight times the rate of inflation during these difficult times created too big of a deficit for us in the out years; not in this year or next year when we’re trying to stimulate the economy, but in the out years.  And that continues to be my concern about the ongoing budget.

I share the president’s objectives of trying to do more on energy security, healthcare, preparing our kids with an education that will enable them to be competitive in an innovative economy, but we’ve got to do that within the context of being fiscally responsible. And I remain somewhat concerned about the out years, because as you know, Larry, if you run a deficit that is growing faster than the rate your economy is growing, eventually that comes back to haunt you and the markets will revolt in terms of higher interest rates and depreciative currency.

KUDLOW:  I think you’re right, I think you’re absolutely right. Today or yesterday, the Chinese are now calling for a new world currency to replace the dollar. And to add to the story, the Congressional Budget Office has re-estimated Mr. Obama’s budget and in comes in vastly higher. But let me ask you, just on the business of this 50-vote majority. Is it right? I mean, we’re worried about a stimulus package, but is it right to put in healthcare, cap and trade, union card check, stop the secret ballot and so forth. All-in-one—not 60 votes which is the custom, but 50 votes under reconciliation. Where will you come out on that debate?

BAYH:  There is some precedent, Larry, for using the 50-vote threshold. For example, President Bush used it to enact his tax cuts during his first year in office, so it has been done before. But I think it should be resorted to narrowly and only as a last resort. And I have signed a letter publicly saying I would not support reconciliation for cap and trade provisions because of the potential—if it’s not done correctly—and I think we do need to address global warming—but if it’s not done correctly, it could have a very damaging effect upon our economy, and that’s not something we need at this moment in time.

By the way, I’ve heard of no one suggesting that the card-check bill should be included in the budget, and subjected to reconciliation. Now, the underlying budget itself and healthcare is a matter for some debate. That may be resorted to, but that remains to be seen. I don’t think you’ll see that coming out of the Senate, although the House did include it on their side.

KUDLOW:  Alright, Senator Bayh, I’m on a short leash tonight, but as always we appreciate you coming on, we appreciate your point of you.

BAYH:  Good to be back.