This is a rush transcript from "Your World," January 2, 2013. This copy may not be in its final form and may be updated.
NEIL CAVUTO, HOST: All right, I would like you to take a look at this.
President Obama is heading into his second term and his march down Pennsylvania Avenue with more Americans feeling down in the dumps, period. Barely a quarter saying they are satisfied with the direction the country is headed right now. And that is the lowest number we have seen since going back to Ronnie Reagan.
No surprise to this Reagan guy, Art Laffer.
What are we take away from that?
ART LAFFER, FORMER WHITE HOUSE ECONOMIC ADVISER: I don't think things look very good, Neil. It is pretty bad, except for your waistcoat. I think your waistcoat looks wonderful.
LAFFER: And Kate was spectacular. She was just spectacular.
But the economy looks bad and Obama now owns it. After these votes and the fiscal cliff and all the negative about those votes that you and I can talk about, the good thing is, is now Obama owns the economy. He has got his tax increases, it is his. And I don't think the economy is going to look good for quite a while. And frankly, that bodes very well for 2014.
CAVUTO: With the exception of you -- and I know in the face of Bill Clinton's tax hikes when he first came to office, a lot of folks were very worried. You at the time were not because he was marrying it and especially in future years with welfare to work and real constructive shrinking of government.
CAVUTO: That was very different. So the effect of a tax hike now I suspect would be very different. Or maybe I'm wrong. Again, I would like to be wrong.
Could there be a scenario in which Art Laffer says this could work out?
LAFFER: No. I don't think so.
Do remember, while Clinton did raise the personal income tax rate, that is very true, remember, he cut the capital gains tax rate.
CAVUTO: Yes, he did.
LAFFER: He cut taxes on the elderly. He did all sorts of wonderful things in there on taxes as well.
He got rid of the capital gains tax on owner-occupied homes, if you will remember. It was pretty amazing what he did on spending. He cut spending by more than the next four best presidents combined. Clinton is a very different person that Barack Obama. And I don't see any hope, to be honest with you, except for a political change.
We lost our chance this time. But I think we will get it in 2014 now that he owns this economy. And all the Democrats were the ones who put it in.
CAVUTO: You argue that Republicans will do well in the midterms?
LAFFER: Oh, I think they're going to do really well in the midterm.
I view a Nixon-like second term for Barack Obama, to be honest with you.
CAVUTO: Do you?
LAFFER: And your poll numbers are showing exactly that type of drop. It happens very quickly.
CAVUTO: Because I look at bad poll numbers for Congress as well, much worse than that of the president.
LAFFER: That is true. That is true.
CAVUTO: You think that turns around?
LAFFER: Well, you do not elect a Congress. Each one elects a congressperson. And that is the big difference here.
You do really elect a president. Once the president's negatives get out of orbit, it really it is hard to bring them back in. W. could not do it and Nixon couldn't do it.
LAFFER: And I don't think Obama can do it either. I think he only has got one term left.
CAVUTO: Well, that's the reality.
LAFFER: (INAUDIBLE) Thank you, Neil.
CAVUTO: Ronald Reagan when he agreed in the 1986 tax hike to raise taxes, even though they finished being a lot lower than they were when he came into office, he did agree with a commitment on the part of Democrats to cut spending.
At the time, the ratio was something like 3-1 spending cuts over tax hikes. That didn't pan out quite that way, but it certainly wasn't 41-1, the ratio of tax hikes to spending cuts now.