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

    This is a rush transcript from "Journal Editorial Report," January 12, 2013. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on "The Journal Editorial Report," if you thought Democrats were done raising your taxes, think again. The president and his allies in Congress are planning their next big tax increase. We'll tell you what's on the table.

    Plus, President Obama unfettered. What his treasury pick and new national security team say about the president's world view and his agenda for the next four years.

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

    That didn't take long. Fresh off the biggest tax increase the country has seen in 20 years, the Democrats are planning their next revenue grab. Senate Minority Leader Mitch McConnell declared the tax issue over this week, saying it's now time to focus on Washington's spending problem. But President Obama insists any cut must be accompanied by more tax revenue. And House minority leader, Nancy Pelosi, says future tax hikes are not off the table.


    HOUSE MINORITY LEADER NANCY PELOSI, D-CALIF.: The president had said originally he wanted $1.6 trillion in revenue and he took it down to 1.2 as a compromise. In this legislation will get $620 billion, very significant, high-end tax, changing the high-end tax rate to 39.6 percent, but that's not enough on the revenue side.


    GIGOT: Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board member, Mary Anastasia O'Grady; and Washington columnist, Kim Strassel.

    Kim, before we get to the next tax increase --


    -- I want to inform our viewers about the stealth tax increase, eliminating some deductions and exemptions for taxpayers above $250,000, not $400,000 as the --


    GIGOT: -- advertising and political spiel on this deal suggested. How did this happen?

    STRASSEL: This was stuffed in there. It was a revenue grab by Democrats. Just a little taste, Paul, of what they would like to do in terms of further closing deductions and loopholes for the wealthy. But the technical term for these are pets and peeves. And what they are basically is they phase out the ability of deductions for higher-income taxpayers.

    And as you said, came in as a much lower threshold than those marginal income tax hikes that were the subject. Thrown in there, dead of night. It was something Democrats demanded and managed to add to the amount they can claim in revenue.

    GIGOT: But $150 billion of the $620 million tax increase are going to come from the provisions.

    STRASSEL: Exactly.

    GIGOT: So they're very, very significant. And a lot of taxpayers will have a big surprise next April.

    Mary, here is the question. We had the big tax increase. It's significant. The president won. Let's face it. He really got what he wanted. So, why do we need more revenue? I thought this was going to solve the deficit problem?

    MARY ANASTASIA O'GRADY, EDITORIAL BOARD MEMBER: Paul, if you look at 2011 IRS statistics, about 2 percent of the U.S. households earn $250,000 a year or more. If you took all of their income, you would run the government for less than half a year. All right, there's just no --


    GIGOT: On every dollar they earn?

    O'GRADY: Exactly. And there's just not enough money in the rich to pay the bills that we have. And so, you know, I think Howard Dean has admitted this. Many people who are Democrats, who are outside of elected office, have admitted this. And we all know that, you know, eventually they're going to go after the middle class. And as Kim says, one of the ways they've already decided to do this is going -- using the limiting deductions. And in fact, I should add that people earning -- couples who earn $130,000 each, individually, fall into this category where they start to lose deductions. This isn't exactly rich people, particularly if you live in New York.

    GIGOT: If they're joint filers, it's over $250,000 threshold, and when it begins to phase out.


    HENNINGER: Paul, the Democrats believe, this generation of Democrats believe that over the last 40 or 50 years the United States made all of these social commitments to the population -- Social Security, Medicare, Medicaid, now Obama-care.

    GIGOT: Well, we have.

    HENNINGER: And -- we have. And they think -- the conventional wisdom, the Simpson-Bowles type argument is that we can't afford this, that out, 25 years from now, all of our taxes will be going to pay for these things. The Obama Democrats believe we made these commitments and we have to find a way to pay for them. They do not want to cut the spending. And so, U.S. spending, which has been about 20 percent of GDP since 1969, I think, they're trying to get it up to around 24 or 25 percent of GDP. We keep repeating this number. But in a $15 trillion economy, every percent of GDP is a tremendous amount of spending. But tax revenue, the last three years, has been down around 16 percent of GDP. That's a tremendous gap.

    GIGOT: But part of that --

    HENNINGER: And they want to raise taxes to close that gap.

    GIGOT: But part of that reduction -- normally, it's about 18, 18.5. And it's popped up under Bill Clinton's presidency above 20 percent, when you have real economic growth.

    HENNINGER: If you have economic growth.

    GIGOT: The 16 percent is because the growth is so --


    O'GRADY: Well, that's what I was -- yes. Well,

    HENNINGER: Their policies are going to guarantee, in my opinion, 2 percent growth for a long period of time. They will never get tax revenue back up towards 20 percent.

    GIGOT: Kim, let's talk about another tax that's on the table. Dick Durbin, the number two Democrat in the Senate --