• With: Kim Strassel, James Freeman, Dan Henninger, Mary Anastasia O'Grady

    This is a rush transcript from "Journal Editorial Report," January 24, 2015. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the battle for the middle class. President Obama lays out his economic vision for next two years and sets the stage for Democrats in 2016. How should Republicans respond?

    Plus, it's being called his Robin Hood tax plan but do the president's proposals target more than the rich?

    And a showdown is brewing as the White House and Congress clash over Iran sanctions. So will a set of Democrats stand up to the president's veto threat?

    (BEGIN VIDEO CLIP)

    PRESIDENT BARACK OBAMA: Middle class economics means helping working families feel more secure in a world of constant change. That means helping folks afford child care, college, health care, a home, retirement.

    (END VIDEO CLIP)

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

    First up this week, the battle for the middle class. That was President Obama in his State of the Union address, laying out his economic vision for the next two years and setting the stage for the coming presidential campaign. The president Tuesday night proposed hundreds of billions of dollars in new taxes in order to fund as slew of new government programs, all in the name of economic equality. So how will Republicans in Congress respond and can the GOP presidential hopefuls lay out an alternative vision for 2016?

    Let's ask "Wall Street Journal" columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and Washington columnist, Kim Strassel.

    So, Kim, start with you.

    The president's agenda sounded to me like one more appropriate to, say, one where Nancy Pelosi was speaker of the House --

    (LAUGHTER)

    -- kind of a wish list of things what's going to give away. What's the thinking here on his part, the political calculation?

    KIM STRASSEL, WASHINGTON COLUMNIST: Well, if it wasn't clear already from his veto threats and his executive orders and general aggressiveness from the midterms, he has no real interest in working with Republicans over the next two years.

    (CROSSTALK)

    GIGOT: Really? It was that definitive of a declaration?

    STRASSEL: Oh, yeah. I think that's what this State of the Union was declaring, which is he intends to use the next two years to lay the groundwork for, maybe even set the terms for a presidential run by Hillary Clinton or Elizabeth Warren, and it's going to be all about the middle class and how Democrats will make the argument that they can make things better with government giveaways to the middle class than Republicans ever can.

    GIGOT: Well, I want to talk about the reason for that because now the economy is finally growing, as we know. The last six month, at least, it's grown better. But middle class incomes haven't risen.

    JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: No.

    GIGOT: In fact, we have a chart here that shows us that in the 1980s and 1990s, you had increases in median household income. And then they fell a bit during recessions. They came back in the mid 2000s. But in this recovery, as you can see, they have been flat. That's the kind of anxiety that the president is trying to address, James. The problem is it's anxiety that he's helped to cause.

    FREEMAN: Yeah, his policies have really been the battle against the middle class. And you can think of all of these new proposals as kind of offsetting the damage that his tax and regulatory limits on growth have imposed from Washington.

    GIGOT: Because we have had such slow growth.

    FREEMAN: That's right.

    GIGOT: That's why we don't see middle class incomes rising.

    FREEMAN: Yeah. You're seeing basically now this is kind of a wish list that targets the people he thinks are Democratic voters within the middle class. In other words, within the middle class, not much here for people who pay taxes, who save, who are in households with a parent at home raising children. It's really geared toward people who don't have income, don't -- or don't have taxable income, don't save, two-earner couples or, you know, young childless adults getting more tax credits. But I think what Republicans have to do instead of trying to match his subsidies and say, here's how we grow the pie for everybody.

    GIGOT: OK, well, let's talk about whether this pitch the president made is going to work.

    DAN HENNINGER, COLUMNIST, DEPUTY EDITOR: Well, it could work if the Republicans don't push back against it and describe the world that Barack Obama is presenting to the American people. I think it's not just Obama. It's the Democrats. It's the Democratic left. They have an idea of an economy in which the government does all these things that he wants it to do. But if the government consumes that much of the nation's productivity, you will have a situation much like Europe, whose growth rates are at least a percentage point below ours. The result: high youth unemployment. In the European Union, last year, average youth unemployment was 22 percent. In Spain, 54 percent. In Italy, 34 percent. There were five million unemployed young people in Europe has year.

    GIGOT: Yeah --

    (CROSSTALK)

    HENNINGER: And the way you compensate for that is by increasing the welfare state so people get money from the government.

    GIGOT: Kim, a lot of debate in Washington among Republicans. Do Republicans need their own so called middle class agenda? What do you think?

    STRASSEL: Well, the temptations for the Republicans -- and you already see this happening -- is for them to try to, as James said, match and also be the ones handing out goodies to Americans, in child care tax credits and health care and college. The problem is what they don't seem to understand is you can't win that war with Democrats because they're always too willing to spend more money than Republicans are. So what they really need to do in the discussion now is, how do you formulate a conservative alternative? And one of the things they're going to have to do is -- their policies are good. What they have not done as well is actually connecting them to the troubles that Americans are facing today, of declining wages and day to day issues. You'll need a presidential candidate who can do that. They have also got to remind everyone that while government free stuff sounds good, we just had a lot of examples, with Obamacare and elsewhere, where when government run these things, it doesn't turn out so well.

    GIGOT: Is Hillary Clinton going to essentially adopt the Obama agenda? Is that what you think -- is she going to come there --

    (CROSSTALK)

    FREEMAN: She's going to try. Obviously, it's gotten a lot harder for her as her wealth has soared and her speaking fees have gone past the $200,000 mark --

    (LAUGHTER)

    -- to associate herself with the middle class. But I think certainly she's going to try to adopt this. But it will be tough because what she's got to do is take the message, but disassociate herself from the results for the middle class that President Obama has actually delivered.

    GIGOT: All right. Describing the results are key to the Republican response and making sure people understand who is responsible.