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This is a rush transcript from "Journal Editorial Report," November 24, 2012. This copy may not be in its final form and may be updated.
PAUL GIGOT, HOST: This week on the "Journal Editorial Report," with a second term secured, is ObamaCare now a sure thing or can Republican governors disarm the controversial law? We'll ask Wisconsin's Scott Walker.
Plus, get ready for the regulatory flood. From health care to financial services to energy, a guide to the new rules about to hit our already fragile economy.
And as fiscal cliff talks continue, big defense cuts are still on the table. So should Republicans embrace the sequester or make a deal to avoid it?
Welcome to the "Journal Editorial Report." I'm Paul Gigot.
With his second term now secure, is President Obama's signature health care law a sure thing. From health insurance exchanges to a vast expansion of Medicaid, ObamaCare is heavily dependent on state implementation. And a growing number of the nation's 30 Republicans governors are saying they won't do the federal government's bidding.
Wisconsin's Scott Walker is one of them, and he joins me now.
Governor, great to have you with us.
GOV. SCOTT WALKER, R-WIS.: Paul, good to be with you.
GIGOT: So when you wrote to the HHS Secretary Kathleen Sebelius, you said you weren't going to set up a state exchange, because you wouldn't have the flexibility to make it work. Why don't you elaborate on what you mean by lack of flexibility?
WALKER: From all the talk, each of us as governors can comply with the law one of three ways, a state-run exchange, a partnership or deferring to the federal government. For any of the folks who rely on me to have a state-run exchange, they need to realize, in the end, there is no flexibility. In terms of final outcome, there is no substantive difference between each of the three options. All of them lead to a federally run exchange one way or the other. A great example of that, I was talking to my friend Gary Herbert, the governor of Utah.
WALKER: Utah, Paul, as you know, and as probably most of your viewers know, year ago, five or six years ago, set up an exchange and did it in a free market way. They did it working with small businesses in their state. They have one of the lowest costs of any state in the country when it comes to health care. They still have quality health care, but they did it through a market-driven exchange. According to my friend, Gary Herbert, that doesn't qualify under the new Affordable Care Act and they're going to have to come back and put in place something that more aligns them with what the federal government wants.
To me, you get the exposure without any of the flexibility. That's not a good deal. And on behalf of the taxpayers in my state, I said, no, thank you, we'd rather have the federal government, not only take on the responsibility, but the responsibility to pay for it and not defer that to our tax base.
GIGOT: Isn't there a risk though that if the federal government runs the entire show that you guys will be cut out totally and, basically, you'll have even less room for maneuver. Your companies in the state, your providers in the state will really have to march entirely to Washington's dictates?
WALKER: Well, there is. And there's that risk, but the reality is, we looked at this -- in fact, we looked at it laterally two years ago. December of 2010, right after the election, I and a bunch of other news governors in both parties went to the White House, went to the executive office building with the Secretary Sebelius and others, and they talked about flexibility then. The reality is the flexibility was limited mainly to things like how many staff and the state do you have? Do you have a handful, like Utah, or do you have hundreds like Massachusetts. In terms of regulation of what has to be included and how it's governed in your state, those things are essentially dictated through the federal government. And for all the talk about flexibility, it really doesn't happen.
I've got to tell you though, as a governor who believes in federalism, and believes in the 10th Amendment, instinctively, my gut, when given the chance on anything, is to have the state run it over the federal government. You look at things like the food stamp program, food share --
WALKER: -- you look at things like special education, that's a mandate that for years has been mandated by the federal government in the states and the school districts in our country, and never comes close to covering the costs of that. I think that most of us who said no and deferred to the federal government did so because we didn't want the cost incurred upon our taxpayers.
GIGOT: As the law is drafted, I gather that the subsidies can only flow through state exchanges. That is the subsidies for individuals to have health care. Now, if the federal government delivers the exchange in your state, runs it, then, at least as drafted, the subsidies will not be able to flow. Was that part of your calculation as well on this decision?
WALKER: No, I think, in the end, there's a series of things, that being one of them, some other things in terms of insurance regulation in the state, beyond the exchange itself, those are things all of us, including some Democrats who did the same thing we did and deferred to the federal government, we're going to come back to the Congress and work with members of both political parties. I think those are reasonable adjustments, technical-type adjustments that the Congress should be able to make going forward. Because as you know, and again, your viewers know, most of those decisions were made a few years ago, about this time of year, late in the game, without any real input from governors or, for that matter, just about anybody else. And these are the technical things, if they're going to have it, at least make it work.
I objected to it, fought it in court, and fought it politically. I lost those battles. I've conceded that. I've conceded that, at least for the time being, there will be exchanges in my state. They just won't be run by the state.
WALKER: But I think if you're going to make it work, most people realize there has to be some technical adjustments.
GIGOT: One of the things you did win on in the court case was Medicaid. So now states have the option of opting out of the Medicaid expansion. That is a big part of this bill. Have you made the decision on Medicaid yet? Are you going to opt in or out?
WALKER: I have not. But I've got to tell you, as much I did about the original question, I have, as do governors in both parties, some real hesitations about the expansion. In our state, for example, Wisconsin already has over 90 percent of our people covered. And we have one of the most extensive coverage systems in the country. So that's part of the reason we fought the bill in the first place. We already do it well. There's a small number of people, why blow up the system for that?
But having said that, our real concern, it's 100 percent reimbursement for this expansion for the first three years under the terms of law itself. You just read it three years from now, it drops down to 90 percent. Any of us who have dealt with the federal government before in anything else, and special ed is a good example I gave before, know they come nowhere near those sorts of goals several years after the legislation. And so I think many of us are concerned looking ahead to the future saying, are you going to add massive numbers of people on Medicaid, some in more states more than others. In ours, it would be a relatively minimal number compared to other states. But still, would we be adding people and not have the funding. And that's assuming they comply with the law. In light of the fiscal deliver and everything else out there, there's a very real possibility, even within the next year or two, that Medicaid funds to the states might be reduced. And without true flexibility through a block grant, we have a real tough time dealing with what we have today, let alone adding more.
GIGOT: What's your estimate of the number of people to add on Medicaid in order for the expansion? Do you know that off the top of your head?
Walker: That varies. That's one of the challenges with this whole law, not just on the Medicaid expansion but even in the terms of the law itself. When we look at the exchange, we thought the cost of just the exchange could go up to as much as $60 million. For us, the number that would be eligible fluctuates depending on what we can do with the rest of our population. I think for a lot of governors, that's a part of the concern. If we had a concrete answer to this, it might be easier to make those decisions. But we keep sending questions to the administration, not just from the Republican governors, but through the National Governor's Association, and we repeatedly we get letters back that really don't answer those questions. And that's part of the problem.
GIGOT: All right. Well, Governor, thanks so much for being here. There's going to be a big debate and I'll watch your decisions carefully.
Thanks so much for being here.
WALKER: We will, indeed.
And go Packers on Sunday night.
GIGOT: All right. I agree.
All right. And when we come back, after laying low in the run-up to the election, President Obama's army of regulators is about to make up for lost time. From energy to agriculture to financial services, a look at some of the new rules coming your way in a second Obama term.
GIGOT: Well, all was quiet in the lead-up to the election, but President Obama's army of regulators is now back in formation, ready to issue new rules on everything from health care exchanges to greenhouse gases.
Here with a rough guide to what's coming down the regulatory pipeline in a second Obama term, Wall Street Journal, assistant editorial page editor, James Freeman; and editorial board members, Mary Kissel and Joe Rago.
So, Joe, give us a big picture sense here of what -- what are the magnitudes of what we're talking about? A lot of these rules are -- $100 million rules or more in terms of cost, aren't they?
JOE RAGO, EDITORIAL BOARD MEMBERS: Right. And if look at the Bush and Clinton administrations, they all averaged about the same number of major rules every year. It was about 45. Obama's first two years, that surged to about 66, 63, in that range. Now, we're starting -- then it fell in the second two years, in the lead-up to the election. This wasn't because the regulators slowed down.
It's because they delayed everything until Election Day. Now, we're about to get -- they're about to make up for last time.
GIGOT: Mary, what do you think are the big rules you're following?
MARY KISSEL, EDITORIAL BOARD MEMBER: Think about energy, Paul, particularly EPA. EPA's starting to bring out billion-dollar rules, something we haven't seen before. And it's going to really affect almost every part of our economy, because energy goes into the production of pretty much everything. You're talking about ozone air quality standards, carbon standards and greenhouse gas emissions, maybe fracking on federal lands. We're --
GIGOT: Fracking being the hydraulic fracturing technique that has lead to so much new natural gas and oil production.
But that, Mary, that's regulated by the state. Are you saying that the fed wants to get in on the act and preempt the states?
KISSEL: I think it's a possibility, Paul, yes.
GIGOT: OK, so that would complicate drilling decisions by companies and potentially add to costs, even though it's been a big boon to President Obama's economy.
KISSEL: You'd think this is the one area, Paul, where the regulators might want to have a light touch. But unfortunately, probably not.
GIGOT: James, I've been following the financial services industry. And Dodd-Frank, I know it's your favorite bill.
JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Right.
GIGOT: It's much loved across the land.
GIGOT: But most of these bills, most of the rules, I think, haven't been written.
FREEMAN: Yes. You think of the first Obama term with its slow growth, this kind of regulatory frenzy, as a nightmare, may that will end. But really, from that 2010 law, most of the burden on the economy hasn't happened yet. The law firm, Davis Polk, does a scoreboard. They say there are 398 rule makings, separate rule makings that were required by the law.
GIGOT: These are relatively major rulemakings.
FREEMAN: Yes. Really, remaking the financial markets. Only a third of them have been enacted. So most of the big regulatory footprint is coming in the second Obama term, even from a law that was passed in 2010.
GIGOT: What kind of -- give us an example or two?
FREEMAN: Well, it runs the gamut, from derivatives trading on Wall Street to bank regulation, mortgages, the terms of consumer loans. It's all over the board. And on top of that, you have what bankers called the Basil Standards, so these are incredibly complicated rules that helped give us the financial crisis, now coming back more complicated. So it's hard to be optimistic about economic growth when you see this behemoth.
GIGOT: And, Joe, then we have the full glory of ObamaCare. We talked to Governor Walker about it, and he's got a deal with the issue of exchanges in Medicaid. But all of these rules for the insurance industry are all going to be rolling out as well.
RAGO: Right. The day after Thanksgiving, we say about 300 pages of new rules come out on essential benefits all health plans must cover.
GIGOT: And your job, Joe, to read all 300 pages --
GIGOT: So -- I'm sorry.
RAGO: So we're starting to see the wave. All these rules are going to the White House budget office for review. And if you think about it, this law is supposed to be up and running on October 1st, 10 months from now. We're really going to see a crush in the meantime.
GIGOT: What about the economic costs of this, Mary? And not just in terms of how much each rule may affect the economy, but is there a larger cost to the economic growth?
KISSEL: Sure. I mean, take Dodd-Frank, what James was just talking about. That will affect access to credit for hundreds of millions of Americans. It will affect financial innovations and the kinds of products available to buy. Businesses that don't know what kind of regulatory costs they're going to face, they'll have to make decisions whether or not to hire more people, to invest. And these have almost incalculable costs to the economy.
GIGOT: There's also a question of what we can do about this. I mean, with Congress -- Congress can't stop it.
FREEMAN: It's only two terms by the Constitution.
GIGOT: But Congress can't do much. Are the courts the only --
FREEMAN: The court -- I mean, it's possible, now that the election is over, that you see some willingness among Democrats to maybe pare back a few of these laws where they don't want -- didn't want to acknowledge their failures before the election. But I wouldn't be that optimistic. Yes, you've got some court challenges. There is reasonable constitutional argument against Dodd-Frank, for example and perhaps others.
GIGOT: All right. Well, we saw what happened with the constitutional challenges. I wouldn't put that in the bank.
GIGOT: All right, when we come back, as talks to avoid the fiscal cliff continues, deep defense cuts are on the table. So should Republicans embrace the so-called sequester or cut a deal to avoid it? There's a debate ahead.
(BEGIN VIDEO CLIP)
PRESIDENT BARACK OBAMA: First of all, the sequester is not something that I proposed. It's something the Congress has proposed. It will not happen.
(END VIDEO CLIP)
GIGOT: Remember that? President Obama in his third debate with Mitt Romney promising to sequester, those across-the-board cuts to defense spending set to kick in January 1st, would not happen. But as negations to avoid the fiscal cliff continue, sequestration is still very much on the table. And some conservatives think the GOP should embrace it, even at the risk of billions in defense cuts.
We're back with James Freeman, and also joined by "Wall Street Journal" foreign affairs columnist, Bret Stephens.
And OK, James, So $500 billion in defense already built in to cut. Then the sequester would cut another $500 billion over 10 years. Why should Republicans go along with that?
FREEMAN: Because, this is really their only leverage on President Obama. And I think that, as Congressman Jim Jordan has said, the only thing worse than a defense cut is no cut at all. What you get with the sequester is defense but also cuts in the social --
GIGOT: Another $500 billion in domestic discretionary, too.
FREEMAN: Right. And it adds up to about $100 billion in 2013.
I think you will find that President Obama will go a long way to avoid those roughly $44 billion in cuts this year to social programs. And I think if you want to get a deal out of him with meaningful reform on spending or taxes, this is, this is the key leverage point. And if it happens, it happens --
GIGOT: So you --
FREEMAN: -- and you get some spending --
GIGOT: So use spending on domestic discretionary and defense to leverage better tax policy out of the president.
BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: Well, good luck.
STEPHENS: First of all, let's bear in mind that we've already cut $500 billion from defense. You know, I was out on an aircraft carrier in the Persian Gulf a few months ago. This is a carrier that ordinarily takes a compliment of about 90 aircraft. It had about 60 aircraft on at the time. I don't think Americans really appreciate the way in which defense cuts are already hurting us strategically abroad in terms of the kind of forces that we can deploy.
The other thing, when you cut defense, those defense cuts are easy to cut forever. I mean, you just think of the difference between the kind of defense expenditure that we had in the 80's, to say nothing of the 60's, compared to what we have today.
I am not so sure that these cuts in domestic discretionary spending, OK, are going to be forever. No one Congress can bind the next. I think Republicans are foolish to think that those domestic cuts are really going to --
FREEMAN: Look, it's the long-term protection of defense that I think we ought to be concerned about. And the fact is we're not going to be able to be a military super power if they're not an economic super power. And we also know you can't grow your debt and you're spending faster than our economy every year and expect this to work out. It would be great if we didn't have to worry about what stuff costs, including defense, but we tried that. That was the Obama first term. Debt roughly doubled to about$12 trillion. So the --
GIGOT: What an elaborate --
STEPHENS: Let's stipulate one thing, OK? We're sort of having a discussion, he wants to take the hemlock, I want to take the cyanide.
And these are not -- these are some bad --
FREEMAN: But it's a way to get to a better place, I think, because --
GIGOT: What about his leverage point, though, James' leverage point? That's the only leverage these cuts have on President Obama, to really lead to a less destructive solution on tax and spending.
STEPHENS: Why? Do you think he cares about it?
FREEMAN: I think the one thing he cares about is big government. And so this is the one area that actually reduces --
GIGOT: He wants big government.
FREEMAN: -- government spending. Because the problem I think --
FREEMAN: that Republicans have --
FREEMAN: -- he doesn't care if taxes rise.
STEPHENS: Oh, yes.
FREEMAN: I mean, he's fine with it. Probably prefers it, right?
STEPHENS: I think the one thing he has campaigned on is taxes rising on the rich. This is an emotional issue for the president. This is something he clearly cares about. He was deeply stung by the tax deal that he agreed, the extension in 2010. Not only sung by his own left wing base, but I think he was almost ashamed of that deal. I think you're mistaken, if you think this is the kind of leverage that Republicans --
GIGOT: Briefly, James.
Let's say he refuses to deal as he has been. You still get at least a beginning toward fiscal sanity. You get cuts in overall federal spending and that's good for the economy.
GIGOT: All right. Well, viewers, you're seeing this debate here. This is what the Republicans are talking about on Capitol Hill, too.
We have to take one more break. When we come back, "Hits and Misses"
of the week.
GIGOT: Time now for "Hits and Misses" of the week.
Mary, first to you.
KISSEL; Paul, I'm giving a hit this week to President Obama for an unusually strong defense of human rights that he gave at a speech at a university in Burma. Instead of speaking directly to the regime, as many presidents often do, he spoke over the regime and to the people of Burma, to aspirations for freedom and for democracy. Now, Mr. President, I think it's time to give that speech to the people of Russia and China.
GIGOT: All right, Mary.
RAGO: Paul, this is a big hit and congratulations to Chief Justice John Roberts and Lena Dunham, both of whom made the Atlantic list of Great Thinkers 2012, and Esquire's Americans of the Year. Miss Dunham is celebrated for reinventing the romantic comedy with her HBO program "Girls," while Chief Justice Roberts is celebrated for reinventing the taxing power to save the Affordable Care Act. Call it strange new respect for conservatives who endorse liberal priorities. I just hope the chief justice is enjoying his new intellectual company.
GIGOT: All right, Joe.
STEPHENS: This is a hit for Ron Paul. Thank you finally for retiring. There's been a question of Ron Paul. Was he the great man of principle or was he just a somewhat strange character with often, some might say, bigoted views. Recently, he's come out talking about the virtues of secession. Those of us who always thought Ron Paul was a crank find ourselves confirmed.
GIGOT: All right.
And remember, if you have your own "Hit or Miss," please send it to us at jer@FOXnews.com. And follow us on Twitter at JERonFNC.
That's it for this week's edition of the "Journal Editorial Report."Thanks to my panel and to all of you for watching. I'm Paul Gigot. Hope to see you right here next week.
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