• With: Steve Moore, Mary Anastasia O'Grady, Dan Henninger

    This is a rush transcript from "Journal Editorial Report," January 5, 2013. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," Washington avoids the "fiscal cliff" with a tax-and-spend blowout. We'll tell you what it means for the U.S. economy and your wallet in 2013.

    Plus, from Hollywood filmmakers to NASCAR track owners, a look at the real winners in this so-called tax cut for the middle class.

    And with his second term as House speaker secured, does John Boehner have a strategy for dealing with President Obama, and can he survive the coming battle over the debt limit?

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

    Well, with no time to spare, Congress passed and President Obama signed into law this week a bill to avoid the so-called "fiscal cliff." The New Year's Day deal represents the biggest tax increase the country has seen in 20 years, all in return for billions of dollars in new spending and spun, of course, as a tax cut for the middle class.

    Here with a look at what it all means for your pocket book, and the U.S. economy in 2013, "Wall Street Journal" columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; and senior economics writer, Steve Moore.

    Steve, let's go to you first.

    I think based on our conversations this week, you like this deal a little more than I do. Why don't you make the best case for doing it -- for it, for the deal?

    STEVE MOORE, SENIOR ECONOMICS WRITER: Well, Paul, this was, for Republicans, a kind of "eat your spinach" moment. I just don't see any other alternative to what happened.

    And, look, I think this is a rancid deal for so many reasons, especially the fact that I think it's really harmful to the economy.

    I guess my point, Paul, would be I don't see Republicans had much choice. I mean, you talk to John Boehner and you talk to Mitch McConnell, and what they say is, for six, seven weeks, the president would simply not budge one inch on cutting spending. He simply had no interest in doing that. The Republicans believed, and I think they were probably right, that if they'd gone into 2013 without this tax issue resolved --

    GIGOT: Right.

    MOORE: -- they'd be pummeled day after day by the president. So I hate the deal. I think it was the least rotten apple they could have gotten.

    GIGOT: A rancid deal but had to take it.

    (LAUGHTER)

    I don't like the spinach metaphor here. That's good for you. It may not taste good but it's good for you.

    (LAUGHTER)

    (CROSSTALK)

    GIGOT: How much damage is there to the economy from this bill, Mary?

    MARY ANASTASIA O'GRADY, COLUMNIST: Well, I prefer the least rotten apple than spinach.

    (LAUGHTER)

    I mean, I think that the two big problems here is that people who believe that the rich should pay more do not understand the effects of marginal rates. When you raise marginal rates--

    (CROSSTALK)

    GIGOT: The next dollar of income that you earn.

    O'GRADY: Right. So it lowers the incentive of the people that you want it take risks and to innovate and to create. That's one problem. So it will affect the growth of the economy.

    The other problem is, it does affect tax revenues. The guys with the green eye shades say, well, if we raise the taxes this much, we'll get this much more revenue. If you lower the incentive of people to take risks, generally what happens is revenue does not come in.

    GIGOT: So you don't get as much as you think you'll get?

    MOORE: Exactly.

    GIGOT: But here, Mary, look, the economy seems to be -- the stock market loved this, right? They just blew out the next day. It's been up for a while, based on the prospect that something would get done. Housing market is recovering. I mean, the economy, the job market, not great still, 155,000 new jobs, but the economy does seem to be doing OK.

    O'GRADY: Well, I think that's probably right. The economy will do OK, but when you have unemployment at 7.8 percent, and it's really stubbornly not budging, you want to do something -- something more for the economy than just OK, than muddling through. I mean, if you're the president and you can fly back and forth to Hawaii, you're not feeling it, but there are lots of people who are feeling the malaise of the economy, the low, slow growth. So, I think it's disappointing that we weren't able to do something that was really more -- had more of a positive impact.

    GIGOT: Dan?

    DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, there were a couple of big words attached to the "fiscal cliff." One was "uncertainty." The economy as and business needed certainty. And the other was the prospect of a recession. I think the deal probably undoubtedly does avoid a recession. We're not going to have negative growth, but we are probably going to have growth as we have had for about the last two years of two percent or less. So, we do have an economy, but we do have an economy that's bumping along the bottom.

    In terms of the certainty of the tax deal, yes, we do have that, but on the other hand, the Obama health care law is going to be implemented all through 2013.

    GIGOT: Right.

    HENNINGER: The Wall Street Journal just reported that only 14 percent of small businesses actually understand the Obama health care law.

    (LAUGHTER)

    And so, there is a huge overhang of uncertainty.

    And then plus, Dodd/Frank, which is going to be implemented through the financial industry. Why do we have two percent growth? I think those are the reasons. We have some positive signals for the economy, but not enough to pull it off.