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'The Journal Editorial Report,' April 11, 2009

This is a rush transcript from "The Journal Editorial Report," April 11, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: Up next on "The Journal Editorial Report," as April 15th nears, we'll take a look how high your taxes could go. And what it will do to an economic recovery.

Plus, run away, prosecutors. Ted Stevens is just the latest victim of abuse of attorneys out to make a name for themselves.

And just in time for Easter, a new survey has some declaring the end of Christian America.

"The Journal Editorial Report" begins right now.

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

Well, as April 15th nears, taxpayers across the country are struggling to meet the filing deadline and wondering how much higher their taxes can possibly go. Economists, Arthur Laffer is here to tell us. He's the co- author of the book "The End of Prosperity: How Higher Taxes will Doom the Economy if We Let it Happen."

Arthur, thanks for being here. Great to have you here again.

ARTHUR LAFFER, ECONOMIST: A pleasure to be with you, Paul.

GIGOT: You were one of the architects of the Reagan tax cuts nearly 20 years ago now. But that era seems to be ending at least in terms of tax cuts. Are we entering a new era of much higher taxes?

LAFFER: I think we really are. With spending this administration has done and the promises of not letting the Bush tax cuts continue, I think we're entering a period of much higher spending — taxes.

GIGOT: How are they going to go? It's now 35 percent marginal income tax rates. Under Clinton it was up to 39.6 and that's how high President Obama says he's willing to let it go. In the past, as you know, they were as high as 70 percent before Reagan came into office, and 90 percent under Roosevelt. How high are they going to go?

LAFFER: That's right. I don't know how high they are going to go. I bet they'll go a lot, lot higher than 40 percent. I think they're going to extend the payroll tax. I mean, when you look at the income tax, Paul, I mean, you really can't collect much money from upper-income people. They know how to get around taxes. So if you want to raise revenues, you've got to do it in low-level, broad-based taxes. That includes the income tax. That includes the payroll tax. That includes sales taxes. So would I guess they're really going to go after these the low-level, high-revenue based taxes in the next four or five years.

GIGOT: Wait a minute. Wait a minute. President Obama says nobody under $250,000 is going to pay a dime of new taxes. What you're saying, if I hear you correctly, is that that's where the money is. You've got to go at it. What's that going to do to his political popularity if he really does that?

LAFFER: Well, I have no idea. The political popularity does not seem to be based on economics, at least not of the economics I know about.

GIGOT: It's early days. It's still early days.

LAFFER: It is early days, but he's very popular, but he has proposed the cap and trade, which is estimated to raise $650 billion.

(CROSSTALK)

GIGOT: That's a tax on carbon energy.

LAFFER: Yes, carbon energy, but paid by everyone, low-income people. It's a tax like any other tax. My guess, in the next three or four years, you'll see some very major high-revenue taxes and that cannot be done at the high end because those people can get away from it.

GIGOT: One thing we're seeing is President Obama during the campaign said he would raise taxes, but he has put the income tax increases off until at least 2011 explaining that he doesn't wan to hit a weak economy with a tax increase. But this is now hanging over the economy. People know, investors know, Americans know that this is going to hit in 2011. What does that — what does that do in— what impact does that have on investors, decisions to save and so on?

LAFFER: Well, investors' decision to save and so on is negative. For workers, it's the opposite, Paul. If you know they're going to raise taxes next year, what do you do this year? Accelerate all the...

GIGOT: Spend it.

LAFFER: Yeah, you accelerate all the income you can in the lower taxed years. And I think a lot of people are going to try to move the income as best they can forward. I think it will be hard for 401Ks and deferred income plans.

GIGOT: What are you seeing — I use to live in California, very high taxes.

LAFFER: Yes, I did. I moved to Tennessee.

GIGOT: California...

LAFFER: No income tax in Tennessee.

GIGOT: Good for you. I can't say the same for New York, which is already going to raise taxes, substantially it said.

LAFFER: Isn't it amazing. It's amazing.

GIGOT: California has already done the same. Ten other states are talking about raising taxes significantly, in some form or another.

LAFFER: Yes, they are.

GIGOT: I thought the stimulus bill was suppose today prevent this by sending money back to the states. What effect economically is this going to have?

LAFFER: Well, I think the raise in taxes in state and local governments is going to be very detrimental. You can get a lot of people who move, like I did. I moved from California to Tennessee specifically because the taxes. I love it here. It's wonderful. But I think it will really reallocate people, not reallocate revenues on the state and local taxes.

But the stimulus package, I don't think it's going to help the economy, Paul. You can't bail someone out of trouble without putting someone else into trouble. If you spend that money bailing losers out, like the auto companies and some of the other companies, those moneys come from winners and it just hurts the economy long run. That that's really the essence of what our book is call about is how, in the long run, these taxes will have to rise and it will do a lot of damage to the economy.

GIGOT: Here is what the Democrats would say and here is what White House economists say to me, which is, you know, you guys the same thing in 1993 when Bill Clinton raised taxes and look at how great the 90's were. Taxes just aren't that significant an impact on the economy. What's your response to that?

LAFFER: My response, number one, I did not say that. I voted for Bill Clinton. I thought he was a great president. I did not like his raising taxes, but the rest of his policies I think offset it amazingly. He did push NAFTA through Congress, against his own party and the unions. He got rid of the retirement tests. He signed into law welfare reform. He reappointed Reagan's Fed chairman twice. He put in — signed into law the biggest capital gains tax cut in our nation's history. And he — he cut government spending as a share of GDP by 3.5 percentage points. So that's better than the next four presidents combined.

GIGOT: Those policies dwarfed the tax increase of 1993?

LAFFER: They did. They did. The tax increase of 1993 hurt the economy but, on balance, it was way more than offset by the other great policies that Clinton did, I thought.

GIGOT: All right, now here we are. You remember the 70's. We had a terrible economic time. Reagan came in and proposed a new economic plan and the economy did very well. We're sitting here facing an era of higher taxes. If you're a low-tax person that believes in free markets, what should be the response? How would you — do you just propose lower taxes across the board or a specific tax cut, like on the corporate tax rate, or maybe the root of tax reform?

LAFFER: I think we go the route of tax reform. I mean, there was a great article in the Wall Street Journal today, by the way, that went on tax reform and it was really terrific. I think we go tax reform. We get a low-rate flat tax. I like the one that Jerry Brown did in 1992 when he ran against Clinton in the primary. You get rid of all federal taxes except for sin taxes and put two low-rate flat taxes. One on businesses net sales or value added and one on personal adjusted gross income. No deductions. No income. Just bang, that's it. You could match all federal revenues with a tax rates today of 11.5 percent. That's pretty amazing. We could have the economy booming.

GIGOT: On that hopeful note, thank you very much for being here.

All right, still ahead, run away prosecutors. The abuse of power in the Ted Stevens case isn't an isolated incident? We'll take a look at how widespread the misconduct is when we come back.

(COMMERCIAL BREAK)

(FOX NEWS BREAK)

GIGOT: A federal judge this week granted a government request to throw out the felony conviction of former Alaska Senator Ted Stevens and announced he has begun criminal contempt proceedings against the prosecutors who originally handled the case. U.S. District Judge Emmett Sullivan set aside the 85-year-old's corruption conviction at a hearing in Washington Tuesday, saying, quote, "In nearly 25 years on the bench, I have never seen anything approaching the mishandling and misconduct I have seen in this case."

Opinionjournal.com Columnist John Fund followed the Stevens trial. And I'm joined by Wall Street Journal Columnist and Deputy Editor Dan Henninger; and Senior Editorial Page Writer Colin Levy.

John Fund, you covered this case. What did prosecutors do that were abusive?

JOHN FUND, OPINIONJOURNAL.COM COLUMNIST: The first thing they did is they took interviews from witnesses and edited out the parts that were exculpatory to Stevens. But the worst thing in terms of outrageousness was one of the FBI agents investigating the case had an improper relationship with the chief government witness against Ted Stevens. And the judge blew his stack, and should have.

GIGOT: Under the Brady rule of evidence, the prosecutors are obliged to turn over exculpatory evidence to the defense. And in this case, they did not do that in several instances.

FUND: They thought they could get away with it I think because Ted Stevens is an unsympathetic character, a self-described SOB. A lot of people felt that there was a case against him, but they wondered, why in the world was he indicted on not filing documents or reporting gifts? They never built a larger case of bribery.

GIGOT: Also, the timing of this indictment which came shortly before a reelection campaign. That violates long-standing Justice Department policy. How can they get away with this?

FUND: I think the Justice Department was under siege by Democrats in Congress because of the U.S. attorney scandal. And the Attorney General Mukasey was loath to, I think, say to the career lawyers in his department, you can't indict a Republican Senator. He would have been bitterly criticized.

The real issue here is over 20 members of Congress have been indicted since 1980. Almost all of them thought, the Justice Department has been careful not to have the indictments so close to election in which they're running in because it can be seen to politicize the process. Stevens was indicted just before his election.

GIGOT: Colin, let me ask you that political question. Do you think there was enough Republican supervision by the Republican attorney general, Mike Mukasey, of this prosecution?

COLIN LEVY, SENIOR EDITORIAL PAGE WRITER: Well, I think it's really easy in 20/20 hindsight to come up with criticisms of him. But I think if he'd gone otherwise. We might have heard a lot about how the Bush Justice Department is pulling punches on a senior Republican senator, just days before his reelection campaign. So, I think in some ways, the way this is happening now, is the way it was bound to happen, which is to say that obviously, Eric Holder is doing the right thing here. But in some ways, he's also doing the easy thing. He gets some political points for being bipartisan in his administration of justice. And you know, he also sort of begins to call into question some of these other, you know — any other charges of ethical violations, you know will be looked at much more carefully.

GIGOT: So, Colin, you're saying that Holder, give him credit for stopping this prosecution, but he probably did not have much choice given how angry the judge was. And now the judge has named his own prosecutor despite a Justice Department internal investigation.

LEVY: Absolutely, I mean, he — the judge has been absolutely scathing and has said that this rises above the level that can be handled by a Justice Department internal investigation. And this is something where, you know, prosecutors just don't often see any consequence from their action. They're incredibly powerful. And there was a study that was done actually by the Center for Public Integrity a few years ago that looked at it, going all the way back to 1970. And they came out and said that, in all of those years, only 44 prosecutors had ever been actually censured in any way for their actions. And only two had ever been disbarred and that's since 1970.

(CROSSTALK)

GIGOT: Colin raises a good point, which is that these courts, Justice Department, the Bar Association are supposed to provide some standards for the profession. And when you get the cases of abuse and nothing happens, the message goes out, keep doing it.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yeah, it's sometimes known as adult supervision. And one of the things Attorney General Holder said was, we have to make clear to these prosecutors, their job isn't simply to win cases, but to do justice. I think most people would assume that that was a given. But it hasn't been a given here.

And the adult supervision, here would be the attorney general's office, or in the cases of the courts, it would be the judges. I mean, this is a serious problem because prosecutors do have such tremendous power. Now, here you had Judge Emmet Sullivan blowing the whistle on them. In the KPMG case, which was about 13 accountants who were indicted for fraud, the judge in that case took control of it criticized the process

(CROSSTALK)

GIGOT: And threw out the 13 indictments.

HENNINGER: Threw out the 13 indictments. The famous duke lacrosse case, that was a media bonfire where much of the media decided these kids were guilty when, in fact, they should have seen that Prosecutor Niflong had gone completely off course.

GIGOT: There are many, many cases of criminal defendants much less prominent who had the same thing happen to them across the country.

HENNINGER: Certainly.

GIGOT: John, you were saying last summer that you thought, when you followed the testimony, the jury agreed with you, that Ted Stevens was guilty. Do you still believe that?

FUND: Despite the outrageous prosecutorial misconduct, it's incontrovertible that Ted Stevens took a whole one of gifts from someone who had an interest in legislation and he never reported any of them.

GIGOT: Colin, what impact, briefly, is this likely to have — this Ted Stevens case — on future prosecutions, investigations and potential prosecutions of other members of Congress? Is this going to have a chilling effect on that?

LEVY: Yeah, I think that will have a chilling effect. And that's something that will be of interest to Democrats as well. The FBI has been investigating some of the contributions surrounding Jack Murtha and...

GIGOT: Pennsylvania Democrat.

LEVY: And that's something — yes, Pennsylvania Democrat. And that's something that's also pending, so Democrats will have an eye on that.

GIGOT: Thanks, Colin.

Still ahead, Christians across the country are preparing to celebrate Easter, but there may not be as many Christians as there used to be. We'll take a closer look at a new survey that some say signals the decline of Christian America, when we come back.

(COMMERCIAL BREAK)

GIGOT: Just in time for Easter, a new study has some declaring the end of Christian America. According to the just-released 2008 American Religious Identification Survey, the number of Americans who claim no religious affiliation has nearly doubled since 1990, rising from 8 to 15 percent. And the percentage of people identifying themselves as Christians has fallen ten points during the same period, from '86 to 76 percent.

Naomi Schaeffer Riley is here to unpack the numbers. She edits the Wall Street Journal's Houses of Worship column.

Let's, Naomi, take the unaffiliated, no religious affiliation at all. What do you make of that?

NAOMI SCHAEFFER RILEY, HOUSES OF WORSHIP COLUMNIST: There are a couple of points to make. The first is that the majority of that decrease happened between 1990 and 2000. The last eight years has not seen actually that much of a decrease at all.

GIGOT: What was it about the '90's?

RILEY: Well, you know...

(LAUGHTER)

RILEY: Clinton must have had quite an effect on America. And I think the second interesting point to make is that a lot of these unaffiliated are people who are moving in and out of that group. It's a very dynamic group. You could have a church affiliation one day and not have a church affiliation the next day. A lot of this goes back to something we talked about earlier, which is the high rate of religion switching that you get in the country. And I think there may be something to say there, you know, which is to say that people are not as attached to their particular church, but it doesn't mean that they're not church goers, in the general sense.

GIGOT: All right, I want to read awe quote from a Newsweek article by John Meacham. He quotes the president of the Southern Baptist Theological Seminary, Albert Moehler, "The so-called Judeo-Christian consensus of the last millennium has given way to a post-modern, post- Western cultural crisis which threatens the heart of our culture." Is he right or is that a little too apocalyptic?

RILEY: Well, it might be a little too apocalyptic? I think he's right in the sense that people actually are now more willing to say they're not affiliated with a church.

GIGOT: Before it was a taboo.

RILEY: Yeah, it was a kind of taboo. There were some. And also, people are more willing to identify themselves as atheists. It's socially more socially acceptable. And I think that tells you about the culture.

But this is still an overwhelmingly Christian nation when you look at it is compared to other countries. Maybe you get more, a little bit more fervor in some of the southern continents, in Africa and South America. But certainly, compared to Europe, America is still a fervently religious nation. And I think it's overblown to declare, as Meacham has. Maybe Christian America has declined, but I think it's fallen.

GIGOT: Dan, what do you think?

HENNINGER: Well, I think there's a lot going on. For one thing, the 86 percent number was very high. And the old saying "The family that prays together stays together," well, in the old days, the families stayed together and went to church together. And then you had the migration patterns where young people would move away from home. They'd move to the big city, New York, Los Angeles. So that cohesion would break down a little bit. And then you had the phenomenon of cross marriages, where people in one religion would marry someone in another religion. And then one partner might give up their religion. And I think that accounts for some of this.

But I think there's a more serious issue beneath this, which is that these religions — Catholicism and mainline Protestantism — have kind of lost confidence in themselves. They don't evangelize anymore. They don't try to commit themselves to people and try to bring them into the church. The Mormons do that and their religion is not in decline. Evangelical Christians do not do that. They're growing. It's the unselfconfident religions that I think are losing their mission.

GIGOT: So, moral self-confidence, confidence in your religious beliefs is just something that attracts Americans still. Do you agree with Dan on that?

RILEY: Oh, absolutely. I think if you have a message, you know, Americans — a good religious message, Americans are willing to listen. The pattern has been, over the last 50 years, that religions that demand more of people are ones that are growing. All these mainlines, they think, if we ask less of people, then they will be willing to come through the doors.

GIGOT: Quickly, Naomi, there's another question about how this affects our politics. And there's a sense in the Meacham article that somehow the evangelical Christians who got into politics, who hoped to reform the culture, are somewhat demoralized by their results of politics. Not surprising, politics doesn't save you. Now they're dropping out of politics and that could affect the political alliances?

RILEY: Well, I think, you know, two things have happened here. First of all, it was overblown, the idea of how much the religious right dominated politics. And it's overblown how much the religious right is moving away from politics. Younger evangelicals didn't vote for McCain in his big numbers, but overall, evangelicals gave him a lot of support.

GIGOT: All right, thank you, Naomi.

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.

And, Dan, first to you.

HENNINGER: Paul, Our friends in France have been hit by the biggest student riots since 1968. Occupied the Sorbonne and, in two cities, they even took the university president hostage. This has going on for ten weeks. What's it about? The government and President Nicolas Sarkozy are trying to reform the system by, for instance, asking researchers to spend more time teaching. But here's the good news. They announced this week that for the two week Easter holidays, they'd take it off, go away and come back two weeks later and start protesting again. In France, it's spring break for protesters.

(LAUGHTER)

GIGOT: Thanks.

Naomi?

RILEY: I'd like to give a hit to the state of Vermont, which earlier this week, passed gay marriage the way it is supposed to be passed. That is, the way we pass laws is supposed to be through the legislature, not the courts. And Vermont is the first state that actually managed to — the legislature overrode the governor's veto, and 100-49, that's just barely the two-thirds majority, managed to pass gay marriage.

GIGOT: Thanks, Naomi.

Colin?

LEVY: You know, Paul, I'm going to give a big miss to the delegation of the Congressional Black Caucus that visited Cuba and came back with what sounded like a Fidel Castro-sponsored infomercial for that country, and urged us to change U.S. policy towards Cuba. They said that they had spoken to Fidel Castro and looked directly into his eyes, presumably saw his soul there. As far as anything that they'd seen, there was no real visible repression in Cuba. They did this without having ever talked to dissidents. So maybe the in next time they try it, they should do that.

GIGOT: Thanks, Colin.

That's it for this week's edition of "The Journal Editorial Report."

Thanks to my panel and to all of you. We hope to see you right here next week.

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