• With: Kim Strassel, Dan Henninger, Mary Anastasia O'Grady, Bret Stephens

    Right, except that what's happening here is that capital that could be invested in productive businesses or used next year is being pulled out of 2013, into 2012, so it can be realized as a profit. And that capital probably will then be put in cash accounts or marginal investments because these people don't trust going into 2013. They're just taking economic activity out of that year.

    GIGOT: OK. So what's the economic impact going forward next year?

    HENNINGER: Why, I think it's dire for 2013. I really do. I mean, they're just sort of sucking the air out of 2013. And back to the point we were talking about, the negotiations in Washington --

    GIGOT: Right.

    HENNINGER: -- at some point, somebody, maybe the Republicans, have to speak up about defending the real economy against the sort of policies they're talking about down there.

    GIGOT: Yes. They do get wrapped up in this insider baseball, and we're guilty of that, too, playing to that, and probably a lot of people out there. What they really want to know is, is the economy going to grow or not.

    HENNINGER: Sure.

    GIGOT: If you're increasing taxes on capital and dividends, you get less capital and dividends, and then less growth for the economy and then less revenue for the government.

    O'GRADY: Well, a lot of people worry about the many years that Japan has been in a slow-growth environment. But they've kept interest rates very low in Japan. But the problem is government is too big. That's why Japan has not been able to start growing again. And this is the path that the U.S. is certainly on if we don't change that dynamic.

    GIGOT: Kim, is there any recognition about this in Washington or is it all -- I mean, do you hear any of this discussion, or do they really believe, certainly, the White House and the treasury, that tax rates like this don't matter, that ultimately --

    (CROSSTALK)

    STRASSEL:  No, they do. They do to a degree. If you talk to the higher-up officials in the White House, they say, come on, so we're going to raise the rates a little bit. It's not going to matter. I think what is fascinating to put it in the context of the bigger debate down here right about tax revenue.

    GIGOT: Right.

    STRASSEL: The White House and its economists have this view, the static view that, if you've got X amounts of capital gains income or dividend income, you tax it 20 percent more, you get 20 percent more tax revenue. You don't, because people decide to shelter it. They do their transactions the year before, when the amount is less. And so, all of these numbers that the White House is counting on and sort of rubbing its hands together, hoping to get, they're not going to get anywhere near that

    --

    GIGOT: Here is the --

    STRASSEL: -- because the wealthy, as Mary said, are very good at making sure the tax man can't get their hands on it.

    GIGOT: Mary, here is the thing I don't get about the president's calculation, politically. If you look at the Reagan's presidency and the Clinton presidency, one reason they had successful reasonably second terms was they had growth. Clinton had 4 percent growth, more than four percent. Reagan very close to that. That buoyed public sentiment that helped their approval ratings. Drew up enormous revenues that they could use. If Obama gets a recession in the second term after the slow growth of the first term, he's dead in the water. He can't afford that.

    O'GRADY: Yes, but, Paul, there's a whole economic school -- we call it Keynesian -- which says that when the economy is slow and not growing, government has to step in and play the role of the engine of growth, by spending money. This is something that the Democrats believe in religiously. They think that the only way to get the economy growing again is to spend a lot of money from the government. That's where the problem comes in.

    GIGOT: All right.

    When we come back, as he prepares for a second term, President Obama faces the prospect of assembling a whole new national security team. A closer look at who could fill the top posts and a preview of the controversies to come, next.

    (COMMERCIAL BREAK)

    (BEGIN VIDEO CLIP)

    HILLARY CLINTON, SECRETARY OF STATE: Susan Rice has done a great job as our ambassador to the United Nations. And, of course, this decision about my successor is up to the president.

    (END VIDEO CLIP)

    GIGOT: That was secretary of state, Hillary Clinton, reacting to talk that President Obama may nominate U.N. Ambassador Susan Rice to replace her. Rice made the rounds on Capitol Hill Tuesday in an attempt to ease Republican concerns and smooth the way for a potential cabinet nomination, just one of the positions that President Obama will have to fill on his national security team in his second term.

    We're back with Dan Henninger and Mary Anastasia O'Grady. And Wall Street Journal foreign affairs columnist, Bret Stephens, also joins the panel.

    So, Dan, is there a case against Susan Rice for secretary of state?

    HENNINGER: Senator John McCain and Senator Kelly Ayotte do, indeed, feel they have a case again her and it relates to the events that took place in Benghazi before the election, because Susan Rice, after the incident happened, that the murder of Ambassador Stevens, went on the Sunday morning talk shows and said that the demonstrations were related to the Islamic video that some kid in California made. And what they want to know is, why Susan Rice, the U.N. ambassador, was sent out there, and why she was sticking with the story that was crumbling almost as she was saying it.

    GIGOT: But she said it was the intelligence community talking points and she was not trying to be dishonest.

    HENNINGER: Two -- two points. They want to know whether the administration was politicizing or trying to protect the president from an ugly event in Libya just before the election. And, second, the more serious policy issue is, what exactly was the administration, the White House and the State Department doing during that period when this big fire fight was taking place in Benghazi? And I think the White House has been trying to sweep this issue away in the wake of the election. And I think these Senators are entitled to keep pressing to find out what happened then.

    GIGOT: So, Susan Rice's nomination becomes an opportunity, I guess, in Dan's telling, to try to get at that story, that Libya story.

    BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: It's actually an opportunity to get at what the nature of the Obama administration foreign policy is, Paul. And Susan Rice, in some ways, encapsulates a strain in Democratic policy thinking that goes way back. There's a story that's actually told by Samantha Powers, a close aide to President Obama. She wrote a book about the genocide in Rwanda in 1994. And Susan Rice was at the State Department, makes a cameo appearance in the book, where she is quoted asking, "If we call what happened in Rwanda genocide, how does that play for us in the, what there then the midterm elections of 1994?" Well, there's a pattern here, as you see. One is a reluctance to have America be engaged in certain issues. And the second one is politicizing foreign policy issues because they might hurt the president's political stance.

    GIGOT: And you want a secretary of state, if you're -- well, the American people want a secretary of state who has some more independent judgment and is not going to thinking so much about the politics, is that the point?

    STEPHENS: Well, that would be one thing that you would look for in the secretary of state.

    (LAUGHTER)

    (CROSSTALK)

    GIGOT: Sorry for stating the obvious, I guess.

    STEPHENS: The national interests and not the president's midterm, when it comes to Irans and North Koreas of the world.

    GIGOT: But is that enough to stop, Mary, a president from getting the secretary of state that he wants. And with John Kerry, who is often mentioned, the Senator from Massachusetts, as the alternative to Susan Rice, would he be any better?