• This is a rush transcript from "The Journal Editorial Report," November 13, 2010. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," a showdown looms as Republican prepare to make their mark on fiscal policy. But is the president ready to retreat on taxes?

    And with states facing their own budget shortfalls, Texas Governor Rick Perry tells us how he'll close the gap without Washington's help.

    Plus, the Bush legacy. From the financial crisis to his freedom agenda, does the former commander-in-chief have any regrets? He tells our own Kim Strassel.

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

    Lawmakers return next week for a post-election lame-duck session. The issue of extending the Bush-era tax cuts will be at the top of the agenda. And this week, the White House signaled that President Obama may be ready to cut a deal, accepting a temporary extension of the cuts for high earners to win renewal of the tax breaks for the middle class. Senior advisor, David Axelrod, is denying it's a retreat. So why are liberals howling?

    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and Washington columnist, Kim Strassel.

    Dan, what a difference an election makes. David Axelrod is getting pounded, I think, for acknowledging the obvious, which is that the president now has to deal with a Republican Congress. Are the tax cuts going to be extended, all of them, and for how long?

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Before we get to whether they will be, let's describe what will happen if they did extend them. If they extended all of those tax cuts for three years, I think it would just be the biggest check booster we've seen. Cash will start to be unlocked from corporations and the stock market would go up. What are the chances? You know what? I'd say about 25 percent.

    GIGOT: Twenty five percent?

    HENNINGER: Yes.

    GIGOT: To be extended for three years?

    HENNINGER: Yes, that's right.

    GIGOT: Wow.

    HENNINGER: You mind if I get real?

    GIGOT: I put them higher than that.

    HENNINGER: Allow me to get cynical.

    (LAUGHTER)

    I think this is a trap, Paul. I really do. I don't think that the administration or the Democrats are going to deal in good faith. I think the game is just what it was before the election, paint the Republicans as the party of obstruction, and specifically tee up John Boehner as the Republican Pelosi. And you know, this new kinder John Boehner is not the real John Boehner. Make him pop and put him in opposition with the smooth, cool President Obama. I think that's what the game is here.

    GIGOT: That means, Kim, all the tax cuts would expire because presumably the Republicans aren't going along with a partial extension, at least that's what they're saying now on some of the tax cuts. Do you see that same kind of a train wreck scenario?