• This is a rush transcript from "The Journal Editorial Report," February 6, 2010. This copy may not be in its final form and may be updated.

    PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," President Obama's new budget, a record spending boom paid for by $2 trillion in new taxes.

    And the drone war, as the administration ramps up predator strikes against Al Qaeda and Taliban targets, the left begins to push back.

    Plus, a social theory turned upside down, why crime rates have fallen as unemployment has spiked.

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

    President Obama unveiled his budget for the 2011 fiscal year this week, and despite talk of tough choices and spending freezes, the big news is a big boom in new spending, including $25 billion for states for Medicaid and $100 billion for yet another jobs stimulus. It's all financed by record deficits and $2 trillion in tax increases.

    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; and senior economics writer, Steve Moore.

    So, Steve, the Scott Brown election in Massachusetts was supposed to be sending a message about fiscal restraint against the growth in government, but this budget doesn't show that. What is the White House calculation here? I mean, political and economic?

    STEVE MOORE, SENIOR ECONOMICS WRITER: You know, Paul, last week, I was in the — at the Republican retreat when President Obama told the House Republicans, I am not an ideologue, but look at the budget, and you see the opposite, massive increases in domestic spending on top of the fiscal stimulus bill that passed last year. We'll borrow, under this budget, in Barack Obama's first three years in office, $4 trillion...

    GIGOT: Steve, I get that, but what is the White House calculation here? Do they believe that this is going to grow the economy and, therefore, we must spend to create jobs? Is that part of it or is there something political here? Is this a political document going into the elections?

    MOORE: I think it's an ideological document. I think that Barack Obama does believe in the power of big government. He talks about all of these green programs that are going to create jobs. And so I think it's really being driven by a view that this is a way to expand the economy. It hasn't worked. We saw with the unemployment rate numbers that came out on Friday that the economy still isn't creating jobs, despite this massive infusion of government and the stimulus.

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: The part of Paul's question though, I just do not understand is what their political calculation is. I don't read it because, as you said, there was Massachusetts. I personally believe that both the gubernatorial races in New Jersey and Virginia also went to the Republicans because the electorate, in large part, is very anxious about the level of spending that we're engaged in the past year. We started the year with a $787 billion stimulus package. Then he segued into the health care debate, which was a trillion dollar proposal, and now this. I think you get to levels of spending and the American people just get nervous about it. I mean, after all, they threw the Republicans out of Congress in 2006 because of spending.

    GIGOT: Let's talk about the targeted tax cuts, which are a big part of the president's strategy, a jobs tax credit, you've got a zero rate for capital gains for some small businesses. Is that big enough to make a difference to create jobs?

    MARY ANASTASIA O'GRADY, COLUMNIST: Well, the National Federation of Independent Businesses has called it a drop in the bucket.

    GIGOT: Really?

    O'GRADY: Yes, and there are a couple of reasons for that. I'll give you some examples. The capital gains tax cut. Apparently, it's for C- corporations and only 25 percent of small businesses would qualify for that. Also, things like the $5,000 tax credit. You know, businesses are not going to shift their business plans for such a small amount of money. And what they're facing is an elimination of the Bush tax cuts and a lot of policy mandates that the president is threatening, like cap-and-trade, health mandates, higher taxes. All of those things have them very worried. So for them to take on new employees on their payroll in an environment of so much uncertainty is not — they're not going to do that.

    HENNINGER: And, Mary, the health care bill still looms over that.

    GIGOT: Right.

    HENNINGER: I mean, the health care bill mandates that you provide insurance or, if you don't, you pay an 8 percent payroll tax. The Small Business Federation is adamantly opposed to that. That's up in the air. On one hand, proposing a tax credit and, on the other hand, threatening a payroll tax.

    (CROSSTALK)