• This is a rush transcript from "The Journal Editorial Report," February 28, 2009. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: Up next on "The Journal Editorial Report," the Obama agenda unveiled. The president said it is a day of reckoning and he is proposing a fiscal and policy revolution.

    Plus, a closer look at the administration's plans to stress test the nation's biggest banks.

    The war on the border. A big spike in drug violence in Mexico has U.S. officials warning tourists, and worrying about a spill over into the United States.

    "The Journal Editorial Report" begins right now.

    Welcome to "The Journal Editorial Report," I'm Paul Gigot.

    Those who thought the recession and financial meltdown would moderate Barack Obama's policy ambitions were set straight this week. The president laid out the most ambitious and expensive domestic agenda since Lyndon Johnson, moving ahead with campaign promises to overhaul health care and implement a European-style carbon cap and trade program.

    Here to tell you how you how he's going to pay for it all, Wall Street Journal columnist and deputy editor, Dan Henninger; Columnist, Mary Anastasia O'Grady' and assistant editorial page editor, James Freeman.

    Dan, starting with you, Barack Obama described himself this week is a pragmatist. He's proposing things as they will work. Yet in a column he wrote he described this as a radical presidency because of the budget. Why?

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I think it is radical presidency if the meaning of radical is serious abrupt change. That's what we're going to get your.

    Since around the 1980s, and the presidency of Ronald Reagan, we have had an economy led by the market, the free-market. If you look at Obama's budget, he says explicitly that some of the most important areas of life — energy policy, health policy, infrastructure and education — have, his word, been "sacrificed" for tax cuts for the wealthiest and most well-connected. He wants to reverse that. He wants the government to decide that health care and energy are the primary things that we have to do, and that money has to be transferred from the marketplace from those people to support things that he chooses and that he guides. That is a radical change.

    GIGOT: My impression is that this budget isn't about just repudiating the last two or four years, Mary. This is about repudiating 30 years, going back to 1980 to Reagan and Clinton.

    MARY ANASTISIA O'GRADY, COLUMNIST: No, the progressives are in charge. If you think about the decade of the 1930s and what they sought to do, this very similar to that. They look at the tax rates under the period you just mentioned that basically were around 18 percent of GDP, and they say that is just flat out too low. We want to get it well above 20 percent. We want government to care for people from cradle to grave, including their health care, and we're just not paying enough in taxes. They think that fundamentally that rate has to be much higher.

    GIGOT: there is also in terms of spending, James, a big spike obviously in 2009 and 10 related to the stimulus, and Barack Obama said he wanted to do that, and that's going to be much bigger than the 20 percent or 21 percent spent the last four or five years as a share of the economy. That's federal spending as a share of the economy. Even after the economy starts to recover, it will be at 22 percent or 23 percent, as far as the eye can see.

    JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Massive. Looking at historical parallels, you have to go back to World War II to see this level of spending as a percentage of GDP, to see deficits as large as a percentage of GDP. Think about World War II, we saved western civilization, defeated Hitler and Tojo.

    (LAUGHTER)

    Now we're weatherizing homes and driving up the budget of the Commerce Department and all other federal agencies. I would think at some point, a big dose of skepticism is going to set in among the American people to say, wow.

    GIGOT: One thing that striking to me, Dan, is the degree of ambition politically. The political system has taken a distant event, the stimulus, and gotten that through very early. Usually you can even do, a president - - even a first year of a popular president, only one other big thing. Barack Obama is saying I wanted has this huge budget undertaking and than I'm going after health care and I'm going after this cap and trade energy program, which would turn upside down the way we manage the energy policy in America.

    HENNINGER: This is an interesting point. And we will talk about cap and trade in this context. It seems to me that Barack Obama, more than any president we have had in a long time, really sees the country and its institutions as basically a national government. He is the president for all the people and so his programs are sort of for the nation, when in fact, we have a federal system. Congress represents the states. Those interests are going to press themselves into this budget. For instance, in cap and trade, they are going to put carbon fuels much more expensive.

    GIGOT: Cap — just so people will understand, you're putting a cap on the use of carbon by putting a price on it, so you will have a property right. And the government then allocates your ability to emit carbon energy.