This is a rush transcript from "The Journal Editorial Report," December 8, 2007.

PAUL GIGOT, HOST: This week on the JOURNAL EDITORIAL REPORT. Garry Kasparov in the match of his life. The former world champion is taking on the regime of Russian President Vladimir Putin and he will tell us why.

Plus, Fred Thompson has his flat tax. Mike Huckabee has his fair tax. But who has got the better idea is? What are the other presidential hopefuls proposing? Our panel breaks down the candidates tax planes after these headlines.

(NEWSBREAK)

GIGOT: Welcome to the JOURNAL EDITORIAL REPORT: I'm Paul Gigot. Though he retired from professional chess in 2005, world champion Garry Kasparov finds himself in the match of his life with Russian President Vladimir Putin. In September, Kasparov was chosen and by a coalition of Russian opposition parties to be its nominee for president this spring in an election that is widely expected to see victory for the Kremlin backed candidate. I recently sat down with Kasparov and asked him why he was making the run.

(BEGIN VIDEO CLIP)

GARRY KASPAROV, CHESS CHAMPION AND RUSSIAN OPPOSITION LEADER: It is making a statement. It is very important that the Russian people to see that there is an alternative even though we know this election even cannot be called an election. It is faked. Staged to cover up the police state built by Putin and his cronies.

But we have to use every opportunity to carry our message and to tell the Russian public and tell the rest of the world we are there and it is not as simple as Putin wants to pretend.

GIGOT: Now, you have described Putin's regime as a government as authoritarian but also more specifically as a mafia kind of regime. What do you mean by that?

KASPAROV: It means that the state industries, the businesses, they are under the control of groups that are loyal to Putin. Loyalty is number one priority for making appointments or eliminating people from the top positions.

Also, it works in the interest of the very few as we say in Russia, all state profits are privatized and state expenses are nationalized.

And this regime has allergy (ph) for blocks (ph). It is like mafia style capitalism. When every element, including foreign policy is turned into the bargaining chips to satisfy the interests of the ruling elite.

GIGOT: How are you going to get your message out? Because most of the airwaves media, TV and radio, is controlled by the government now. How do you reach the public?

KASPAROV: We have Internet which is spreading. It is 17 million or 18 million people who are already following the Internet although not more than 10 percent using it for politics.

But also I think the spread of information depends on the willingness of the general public to receive the information. I feel that a lot of people in my country now want to hear answers to the questions they are asking every day. Why at the time of this enormous economic prosperity, 85 percent of Russians, roughly 85 percent of Russians cannot see benefits?

GIGOT: But the opinion polls that we see suggest that Putin is actually very popular. How do you explain that?

KASPAROV: Opinion polls in a police state, in a country where fear is spreading rapidly and also Kremlin has tight control of media cannot be trusted. Putin was never part of any political debate. You cannot confront him publicly. And I think that the whole construction, it is like a Kremlin propaganda balloon will disappear if we have two weeks on public illusion (ph).

GIGOT: Putin had promised to step down after two years as president.

KASPAROV: Did he? Dealing with Putin you have to read carefully what he said. Because Putin never made two year promises. He indicated.

GIGOT: But let me put it this way. The Constitution says he should step down.

KASPAROV: That's a big difference. What the Constitution says and what Putin promises and what he is doing that might be three different things.

GIGOT: All right. He is supposed to step down after two terms and he recently floated the idea, the thought, the suggestion that he might take a draft to become prime minister of the Parliament. Is that going to succeed?

KASPAROV: I think it is very clear Putin wants to stay. Stay in power.
He wants to pull the strings. He wants to be in control. What he is not going to do is to be the prime minister, because he said he might do it. I think it is very important to look at Putin's record. Anything that he implied or indicated didn't happen. But it is very clear that Putin is afraid to lose power and diplomatic immunity. Maybe his last trip to Iran shows some signs of his intentions.

He spoke to Ayatollah Khamenei and maybe he would like to be not just Don Putin, but Don Ayatollah Putin, to be the spiritual leader of the country.

GIGOT: The supreme leader.

KASPAROV: Supreme — Yes. I think Putin is looking for some kind of supreme position that will help him to be in charge without being directly responsible.

GIGOT: Is it possible he could run one of his supporters as a presidential candidate who would win and then resign after a few months and then he would come back?

KASPAROV: Possible. I think any scenario is possible. Unlike it lasts long (ph), Putin cannot afford for two sources of power exist for too long in Russia. So whatever he does it might be — it should be very quick.
And I think that if Putin wants to stay on top, he must make sure by the summer 2008, when he is supposed to be invited again for this G-7 plus one meeting, he will be the person to go there.

GIGOT: Now it seems Putin, we talk about his opposition to American foreign policy, he seems to be more overt all the time in this, taking a trip to Iran, for example, and saying we support your desire to have at least peaceful nuclear power. And his opposition to missile defense in Europe. What game is he playing here?

KASPAROV: The game is quite simple. A, he doesn't want America to interfere in Russian domestic affairs, i.e., to criticize Putin for destruction of democratic institutions. That's why he creates bargaining changes like missile defense and others to trade. But the most important element of Putin's geopolitical games, high oil prices. He only cares about high oil prices. Anything that he can do to keep them high or to make them higher is a big priority.

GIGOT: He needs to stir the pot in the Middle East. Instability .

KASPAROV: Absolutely. Instability. Not the big, big war because that might backfire but instant and small wars. Hezbollah attacking have the.
That's why missiles always ship to Hezbollah and Hamas. The Iran problem continues. Putin kept promising to solve Iranian problems for four or five years, it is still there. That is all he needs.

(END VIDEOTAPE)

GIGOT: Still ahead, a closer look at Fred Thompson's flat tax plan as well as what the other GOP candidates are proposing. But next, more of my interview of Gary Kasparov. The Putin foe talks about the dangers of taking on such powerful leader.

(BEGIN VIDEO CLIP)

GIGOT: Are you afraid for your I safety?

KASPAROV: Yes, I am. I am afraid. My family is afraid. It is our greatest concern.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

GIGOT: We are back with more of my interview with former chess champ and Russian opposition leader Garry Kasparov. Since we taped the interview Kasparov was arrested in Moscow and jailed for five days for participating in an anti-Putin rally. When we spoke I asked him how western leaders should respond to the crack down on free speech in Russia and whether it would matter if they criticized Vladimir Putin.

(BEGIN VIDEO CLIP)

KASPAROV: It matters a lot. But it is not only about criticizing it is about actions. So far they played into Putin's hands by accepting him as one of the equals. Bringing Putin into the G-7 exclusive club created a special aura, democratic aura for Putin in Russia and made it difficult for us to criticize him because .

GIGOT: There he is sitting with all those guys, all the other democratic leaders.

KASPAROV: Absolutely. And they call him a democrat, a colleague. So who we are in Russia telling that Putin is wrong in doing certain things in our country.

Also, it helps Putin to boost his authority with Russian ruling elite. Money, all money of Russian bureaucracies kept in the free world. They can make friends with China, Iran, whoever but at the end of the day their financial interests are in the West, in the free world. So if the Western readers want to look serious they have to follow the money.

Follow the money.

GIGOT: I asked Secretary of State Condoleezza Rice the question about the G-8 and why not push him out if he's not behaving like a democratic leader and she said it is much better to have him in the tent so we can talk to him and influence him than have him outside where he is going to be worse.

KASPAROV: It's a nice theory. The problem is it didn't work. Occasionally, you have to look at the results of your brilliant theories. The problem is that by having Putin among them, the leader of G-7 jeopardize the whole concept of this club. Seven great industrial democracies. Adding Putin's Russia which is not democracy, not a industrial power makes it a mockery. Then you can add China, you can add Brazil, you can add other countries. For instance, Spain if we talk about a country sharing the same values.

So I think of it two ways, one is forget about the idea and you expand it by not sitting only with Putin, two you create two clubs but at the end of the day I believe that Western leaders must respect the values, something they all share. The values of democracy, the values of human life, market economy and maybe again you have to add Spain, maybe you have to add India, but to make a club of democracies and not having Putin who is a spoiler.

GIGOT: The president of the United States invited Putin to his father's home in Kennebunkport this summer in a very public display of mutual friendship. What kind of signal did that send inside Russia?

KASPAROV: Oh, for Russian rule elite it was clear signal that Putin enjoys very privileged relations with President Bush. It is very important.
Russian propaganda can scorn America every day but it is immense respect for the success of the United States and for the power of U.S. president.
If U.S. presidents offer this intimate relations to Putin it means Putin is the leader. The man who can guarantee the investments, assets, everything that is kept by a Russian bureaucracy in the West.

GIGOT: It makes it very much more difficult for democratic voices.

KASPAROV: Virtually impossible because we are attacking Putin who enjoys these very special relations with the leader of the free world.

GIGOT: What do you think George Bush did wrong in making his initial judgment about Putin? I assume you think he made a mistake.

KASPAROV: He made a mistake from day one because he forgot Putin was a KGB. And as Putin said KGB is always KGB. Putin played his own games. And the moment he recognized the weaknesses of George Bush who wanted to make Putin ally, I think he sincerely wanted Russia to be an ally, but this misreading led to other my stakes. And it was for Bush too difficult to rectify the mistake.

I hope it is not too late. I still think Bush carries enough strength and authority in the eyes of Russian bureaucracy and Putin to at least change something for the better.

GIGOT: Would it help if he met with you very publicly and said ...

KASPAROV: It is not about supporting us. It would be nice to meet with me or other opposition leaders but I think what is important is that they state the obvious. Putin acts like Mugabe, Lukashenko, Chavez, Ahmadinejad .

GIGOT: (Inaudible)

KASPAROV: Absolutely. He must be brought to this list (ph) — you know you do not have to let Putin play these two cards, to be here and there, because any time Bush invites Putin, any time he sits with him, he adds the special democratic clout to Putin's power in Russia.

GIGOT: The — some opponents of this government have died in very mysterious ways inside Russia.

KASPAROV: Killed.

GIGOT: And even in London. So not only in Russia. Are you afraid for your personal safety?

KASPAROV: Yes, I am. I am afraid. My family is afraid. It is our greatest concern because opposing Putin, whether you do it on my level or on the local level always creates problems. Sometimes very serious problems. I have bodyguards from Russia. I try to minimize this by any food or liquid from the companies or among people I am not .

GIGOT: You go to those lengths?

KASPAROV: Absolutely. And still understand it is not — it might not be enough. But I have simply no other choice because being a leader or one of the leaders of the opposition means that you have to encourage others to follow your footsteps. And these people in the Russian regions, they don't have even the minimal protection of the famous name or money to hire bodyguard or the lawyers.

GIGOT: All right. Garry Kasparov, thanks for being here. And we will be watching.

KASPAROV: Thanks for inviting me.

GIGOT: Godspeed.

(END VIDEOTAPE)

GIGOT: Still ahead, flat tax Fred. The Republican presidential candidate embraces an ambition tax reform plan. Where do the other candidates stand?
Our panel investigates after the break.

(COMMERCIAL BREAK)

GIGOT: Well, Fred Thompson has his flat tax. And Mike Huckabee has his fair tax. But who has got the better idea? And what are the other GOP presidential hopefuls proposing?

Here with a closer look at the candidate's tax plans, "Wall Street Journal"
columnist and deputy editor Dan Henninger, assistant editor James Freeman, Washington columnist Kim Strassel and senior economics writer Steve Moore.

So, Steve, Fred Thompson has embraced this so-called voluntary flat tax plan. You like it, I kind of like it. Tell our viewers why.

STEVE MOORE, WALL STREET JOURNAL: Well the flat tax is happening all over the world. There are now 20 countries that have flat taxes. The United States is not yet one of them. Fred Thompson says let's have a flat tax, let's overcome the political opposition to this.

All of the special interest groups that try to protect their deductions and carve outs by essentially telling the American people you can have this voluntary flat tax. If you want to stay in the old system keep all your deductions you can do that. If you want a simple plan with a postcard return, you opt into that. Paul, I think if people had that option, the vast majority of Americans would take the flat tax.

GIGOT: And under the Thompson proposal there would be two income tax rates. Ten percent and 25 percent rate and what a 39 percent family allowance for a family of four and that would vary depending upon whether you were single or how many children you had the 25 percent rate kicks in at $100,000 of income is that right?

MOORE: For a couple, that's right.

GIGOT: OK. All right. Why do you like the voluntary part of it this so much, Steve?

MOORE: Because you know when Steve Forbes ran for president in 1996 on this idea, all of the special interest groups, remember Washington, the K Street lobbies are all in favor of keep the tax system as complicated as possible. That's the way they make their money. So if you allow it to be optional then Americans can decide for themselves whether they want to give up the sacred cow deductions or not. And as I said earlier, I think, most would say yes, I will give them up if I can have a flat tax.

GIGOT: So it is a way of really dealing with the political opposition to the flat tax.

MOORE: That's right.

GIGOT: All right.

Kim, let's talk about the fair tax which Mike Huckabee is proposing. Which is this idea that you throw out the federal faxes. The payroll tax, the income tax and you substitute with one national sales tax at 23 percent.
Is this helping Mike Huckabee at all?

KIM STRASSEL, THE WALL STREET JOURNAL: Well, yeah, I think it is in places like Iowa because there is a devoted kind of group of people who love the idea of the fair tax. I think Steve is one of them. The problem, though, is the long term politically this is really a non-starter.
Economists like this, it is a good idea in principle. The thing is, a couple things. One, if you want the fair tax you have to have a repeal of the 16th Amendment which established the income tax.

Otherwise there is a huge .

GIGOT: Forgive me Kim, but how likely is that going to happen? Don't you have to get through three quarters of the states and two thirds of the Congress.

STRASSEL: That's absolutely right so it will never happen. Never happen.
And this is what allows us you can't - until you can do that you can't go where Mike Huckabee is going saying I will eliminate the IRS.

The other thing is, because you can't it makes someone very politically vulnerable in general election because your opponent you want to add a new tax.

GIGOT: All right. Steve, before we get to the fair tax and I want to debate this a little bit, James, what about the other major Republican candidates, John McCain and the others. Have they been proposing anything ambitious?

JAMES FREEMAN, WALL STREET JOURNAL: This is the opportunity for Fred Thompson because they are saying status quo. Let's keep the Bush tax rates. Romney has said I want too lower income and corporate rates but no numbers unlike Fred who has got a detailed plan.

And by the way, along with this optional flat tax for individuals, Fred has also said let's talk the corporate rate down from 35 to 27. McCain is staying status quo, keep the Bush tax cuts. Giuliani is saying if I could go back no time and create a flat tax instead of the system we have now, I might. But he hasn't really said here is what I want to do today as opposed to here is what I would do 100 years ago.

GIGOT: And is this enough to revive the Thompson campaign, Dan?

DAN HENNINGER, WALL STREET JOURNAL: Oh, I think so. I think it is a big help for him. Let's just mention the 800 billion dollar gorilla in the room, the Democrats. I mean, Barack Obama and Hillary Clinton are not in this debate, right? Because they cannot propose cutting taxes as Thompson is. Their base simply will not accept it. What the Republicans, like Giuliani and McCain ought to do is really get deeply into this and provide some definition for the Republican Party on taxes. Rather than being vague about what it they should do.

This is has huge comparative advantage for the Republicans if they'll take it.

GIGOT: Steve, let's talk about the politics of the fair tax. As Mike Huckabee is rising in the polls. He is now I think close to the lead or in the lead in Iowa. But can he really take this fair tax idea at the national level and win? Because the Democrats would say as they have in some other races where candidates have supported this that everything you buy will suddenly be 23 percent more expensive. That's a pretty big political burden.

MOORE: It is. It is a high tax rate. But what you have to understand about this, there is more antagonism towards Washington and power politics among Republican primary voters than I have seen in 20 years I have been following this. So this is a very populist idea, Paul, the idea of ripping the IRS and income tax system out of the system and moving towards a simple consumption tax.

I think there is a lot of broad-based appeal of this. The idea and the economically let's not forget, Paul. If you have a sales tax with no income tax in America you are going to suck in capital from the rest of the world. I think it has a lot of pro-growth elements of it too.

GIGOT: I think, though, the danger is from a collection point of view. If you have a national sales tax the rate has to be so high, 23 percent, or higher or that you really do begin to have enforcement problems, even maybe as many enforcement problems as you have now. How do you overcome the burden?

MOORE: You have a — you said it very well. You have a lot of enforcement problems with the current IRS system. Where something like 20 percent of the taxes aren't collected and so the fair tax people say, look by having these individual points of collection at the retail level it will make it easier to collect taxes. And remember the rate is lower so people's incentive to evade is much lower.

STRASSEL: Paul we already know there is a political peril to this. Look at Senator Jim DeMint from South Carolina. He ran on this and he almost lost an election because of it.

GIGOT: Thanks, Kim, we have to take one more break. When we come back our hits and misses of the week.

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," it's our way of calling attention to the best and worst of the week. Item one, a stem cell breakthrough we can all agree on. Dan?

HENNINGER: Yeah, you'll recall, Paul, there has been no more bitterly fought political controversy than that over stem-cell research. The promises it would provide cure for Parkinson's, Lou Gehrig's disease and such. The problem has been that you had to harvest the stem cells from embryonic cells creating an ethical fire storm.

Well, just recently both Japanese and American researchers have discovered that they can harvest these from adult cells. Basically the controversy is over. And I think in retrospect we should say something on behalf of say George W. Bush who vetoed that stem cell bill. They were described as Neanderthal knuckle draggers. I think the politics here operated in good faith and that science, in its brilliance, came up with a solution. In this case all is well that ends well, we hope.

GIGOT: we managed to reduce greenhouse gas emissions last year.

HENNINGER: All right. Good, Dan, thanks.

Next, believe it or not, the U.S. managed to reduce its greenhouse gas emissions last year. Kim?

STRASSEL: Yeah, amazing. America, that big bad carbon junkie reduced gas emissions by 1.5 percent last year from the year before. More amazing, still, the Department of Energy tells us this is not because we belong to some touchy feely treaty like Kyoto. But because of high energy prices.
Energy costs. More people use it less, we emit less gas.

Now, economists have been saying this forever. If you really think global warming is a problem, the best, most efficient and only sure-fire way to help is to slap a big tax on gas and other energy. But the politicians don't like to hear this because they know that Americans are already mad about how much it costs to fill up their cars with gas.

So this is a big miss to all those who Washington to continue to deplore the high cost of energy even though they know that if they were succeed it would only result in more of the gases that they claim are such a threat to humanity.

GIGOT: All right.

STRASSEL: They believe this is a problem, they ought to be on this.

GIGOT: All right, Kim, thanks. Finally some interesting new data from the world of political giving. Steve?

MOORE: It is not too surprising, Paul, that two thirds of political donations so far this year from the education lobby and from the trial lawyers and the unions are going to Democrats. What is surprising is that
61 percent of the money from Wall Street and security firms is going to the Democrats. Don't these people understand the Democrats want to raise the capital gains and dividend taxes and want to tax these very Wall Street firms? I think maybe if they want to pay higher taxes they should.
Because if you sell rope to the hang man maybe you deserve to be hung from the rafters.

GIGOT: All right, Steve, thank you.

That's it for this week' edition of the JOURNAL EDITORIAL REPORT. Thanks to all of my panelists. I am Paul Gigot. Thanks to all of you for watching. We hope to see you right near next week.

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