• This is a rush transcript from "The Journal Editorial Report," January 5, 2008.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the 2008 campaign is in full swing and we have it covered. With Iowa behind them, the candidates look ahead. Can Barack Obama and Mike Huckabee maintain their momentum in New Hampshire? We'll have a report from the ground.

    Plus, Hillary's third place finish in Iowa sends her scrambling. Can she regroup before Tuesday?

    And Romney's loss may be McCain's gain. Can he repeat his victory of 2000? Our panel weighs in after these headlines.


    GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    With the Iowa caucuses behind them, the presidential candidates headed to New Hampshire late this week where they are facing a vastly different electorate and set of issues.

    Here with a look at what is at stake in the first-in-the-nation primary is Senator John Sununu.

    Senator Sununu, welcome, great to have you here.

    SEN. JOHN SUNUNU, R-N.H.: It is great to be here, Paul.

    GIGOT: I know you haven't endorsed any candidate but you know your state. In Iowa, the Republican voters in their caucuses said immigration was the number one issue for them. Is immigration as big an issue in New Hampshire?

    SUNUNU: It is a big issue. The economy is clearly pressing on people's mind. And given the recent events overseas in Pakistan and elsewhere, foreign policy and foreign policy experience matters. And I think you put all these things together, they are different issues, people are looking for leadership qualities, leadership characteristics clarity and focus that they want in a president.

    GIGOT: Experience didn't seem to matter too much in Iowa. It is interesting. John McCain is stressing that in New Hampshire and this summer, earlier, when the war in Iraq seemed to be going badly, Senator McCain suffered in New Hampshire. I know the war is not terribly popular. Has the success of the surge in Baghdad and the decline in violence helped him make a come back?

    SUNUNU: There is no question about it. The quality of the work being done on the ground in Iraq, the success General Petraeus has had. For John McCain, more importantly, the fact he has been consistent on that issue outspoken, honest, direct, criticizing the administration and policy when he thought it was off base, and being instead fast even at a time when people didn't think the outcome would be as positive by the end of 2007.

    GIGOT: In a state like New Hampshire, without an income tax, taxes have always been a big issue among Republicans. Is it still an issue this year?

    SUNUNU: Taxes are always an issue, especially in a year like 2007 when we have seen so many attempts to increase taxes, at least at the federal level. A farm legislation introduced, health care legislation, energy legislation, all of these bills had tax increases in them. So the idea that you might have a president or leadership willing to raise taxes and the importance of keeping taxes low to keep the economy strong is, I think, in people's mind.

    GIGOT: A lot of Republicans have said we will preserve the Bush tax rates. But with the economy slowing there is beginning to be a debate that maybe we need economic fiscal stimulus. Is there an opening for a Republican, at this stage, who wanted to come out and say let's not just keep the Bush rate, let's propose another tax cut to make sure we don't go into recession?

    SUNUNU: I think there is an opportunity there, but it has to be uniform. I think you have to focus on tax simplification. The idea should be to have a tax code that promotes investment and job creation, wage growth. Not to try to find a gimmicky package that panders to one group or segment of the economy. Too often the word stimulus package turns into a grab bag, sometimes a grab bag for special interests.

    We have a tax code that's too complicated. A regulatory structure that's too complicated. If a candidate wants to seize on this, they have to be willing to do real reform and change of our tax code.

    GIGOT: Your state is changing demographically. I remember in the '80s, it was solidly Republican. It has been trending, of late, Democratic. You have a Democratic governor and what explains what is happening in that statement. It gets bluer all the time.