This is only funny because it’s a puppet. Otherwise, it’s very disturbing.
As far as I can tell, Live On Tape was a sketch show that ran on KLJB-TV, a local station in Davenport, Iowa. It was on for two years in the late 1980s. I may well be wrong that this is the source for this sketch though.
And, oh my, I’ve just realised the shared idea it has with this, from Fist Of Fun.