Larry Kudlow

In the last month's run-up to the midterm elections, stocks have been climbing while Republican polls have been falling. Does this mean the markets favor gridlock in Washington, after six years of Republican rule? It's an odd paradigm.

I put this question to Vice President Dick Cheney in Washington this week, during a special interview that aired on CNBC's "Kudlow & Co." His answer was no. He disagrees with the market. The veep strongly believes a Democratic takeover of Congress will spell trouble for both the current low-tax environment and the economy overall.

A rising stock market and sagging GOP fortunes? Cheney would prefer to think the current bull market reflects a strong economy, one that grew out of the Republican tax cuts of 2003. And it's here that he spies a danger:

"I think if Charlie Rangel ends up as chairman of the Ways and Means Committee ... that he doesn't believe there's a single one of the Bush tax cuts that ought to be extended."

A heated Charlie Rangel, in response, actually called the vice president a "sonofabitch." So the battle is joined.

Truth be told, Rangel has said more recently that he has no intention of rolling back the investor tax cuts on capital gains and dividends. But Cheney says: Not so fast.

"If a man like Charlie Rangel were to be chairman of (Ways and Means) ... sitting there with the gavel, all he has to do is not act -- just don't call up the legislation -- and there'll be a big tax increase."

So, Mr. Vice President, will you take a no-new-tax-hike pledge, including any high-tax, pay-as-you-go deals?

"Well, I will," said Cheney, "but the president is the one that obviously has got the pen, and he certainly supports that same proposition."

The vice president described the 15 percent tax rate on dividends and capital gains, the top 35 percent personal tax rate, the reduced marriage penalty and the enhanced child credit as safe with Bush in office. He believes higher taxes are not a worry.

And what about spending? Nancy Pelosi told me last week on CNBC that the Democrats, if they take the House, will push for a balanced budget and spending restraint. She also said tax increases would only be a last resort. I relayed this pledge to Cheney, who found the humor in it: "I don't think she's running on that platform in San Francisco."

But aren't the Democrats stealing the Republicans' bacon on the whole balanced-budget issue? And why haven't Republican leaders called for a balanced-budget target? So far as I know, no one in Congress or the White House has.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.