This is a rush transcript from "The Journal Editorial Report," May 30, 2009. This copy may not be in its final form and may be updated.

STUART VARNEY, FOX GUEST HOST: This week on "The Journal Editorial Report," as both sides gear up for a Supreme Court confirmation fight, Sonia Sotomayor may be in for a tough summer. And she'll have Vice President Joe Biden to thank for it.

G.M. on the brink. Bankruptcy is imminent. Get ready for government motors and all that implies.

The case of the missing millionaires. We'll tell what happens to states that sock it to the rich when the rich fight back.

Welcome to "The Journal Editorial Report." I'm Stuart Varney, in this week for Paul Gigot.

Both parties are gearing up for the summertime confirmation battle over Supreme Court nominee Sonia Sotomayor. As the White House assemblies a team to push her through, critics are going over past speeches, her writings and her record with a fine-tooth comb. If the prospect is nasty, she may have none other than Vice President Joe Biden to thank.

Here with the preview of the fight ahead, Wall Street Journal columnist and deputy editor, Dan Henninger; opinionjournal.com editor James Taranto; and senior editorial writer, Collin Levy.

Collin, to you first. How is this battle going to shape up? And what does Joe Biden have to do with it?

COLIN LEVY, SENIOR EDITORIAL WRITER: Well, I think the battle is going to be tough, there's no question. And people have really been talking about Joe Biden as a help to President Obama in this process because he has so much experience. He was chairman of the Senate Judiciary Committee and served on that committee for about three decades.

And during that time, the confirmation process became increasingly thorny. There was a time when nominees could get deference and the senate would confirm them after a thorough hearing. But, during Mr. Biden's chairmanship, particularly with the nomination of Robert Bork, that that process became something that was much more contentious. And so Vice President Biden really brought the idea that judicial philosophy was adequate grounds of rejecting a nominee.

VARNEY: OK.

James?

JAMES TARANTO, OPINIONJOURNAL.COM EDITOR: Although there was a more recent time when Supreme Court nominees got deference. That was 1993 and '94, when Bill Clinton made nominations. The Republicans basically held — Republicans were in the minority, but the hearings were perfunctory and they got a dozen "no" votes between them. So I would not advise the Republicans to just roll over on this. We've seen that appeasement can't work because as soon as there was a Republican president, the Democrats were back with smear campaigns.

I will say this. If Barack Obama accomplishes nothing else with his presidency, he deserves credit for getting Joe Biden off the Judiciary Committee once and for all.

VARNEY: They're being — the Republicans are being dared to give a Latino woman a hard time in the hearings, Dan?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, you know, what Collin was talking about was a period with — that started with Robert Bork and which they turned these nominations into a version of get the guest, get the nominee. And you had these special interest groups out there combing through the nominee's past for any peccadillo. It came up obviously in the Thomas hearing, a total fiasco.

That's a lot different than sitting there impressing the nominee to talk about her judicial philosophy. In this case, I think it's very, very important that they ask Sonia Sotomayor what her judicial philosophy is, because it is in fact an idea called legal realism, which is extremely different than what most of the justices currently on the court believe in.

VARNEY: James, you looked at her record. How does that come through in the record?

TARANTO: There are things in her record that I like and don't like. One case that I liked, Papas versus Giuliani, was a First Amendment case. She wrote a dissent on behalf of a New York policeman who had been fired for sending anonymous racist letters to people who had solicited him for money on his own time. It had nothing to do with his duties on the force. And I'm not sure I agree with the outcome on this case, but she sided with the policeman on First Amendment grounds. I like that instinct of hers. That's an instinct that has faded among judicial liberals. On a lot of issues, conservatives have actually favored a broader interpretation of the First Amendment on issues like hate speech, campaign finance and so forth.

And so if she's bringing the instinct to expand the First Amendment from the Warren court, that's something I would approve of.

VARNEY: Collin, let's get back to...

(CROSSTALK)

LEVY: Sorry.

VARNEY: When it comes to being tough in these hearings, do you think that ethnicity and gender is going to trump judicial philosophy?

LEVY: No, I don't. I don't think it will. And I don't think it should. I think the thing that you really have to look at here, I think, Dan is absolutely right that she deserves to have her records thoroughly examined. But once that record is examined, I think that the ultimate responsibility for this nomination lies with President Obama. And so, in looking through her record, it should be with an eye to giving voters a real sense of what it means to lose — for Republicans to lose an election, and for this sort of judicial philosophy to become the norm. So that's where the real economy is.

VARNEY: Dan?

HENNINGER: Well, if there's one word attached to her judicial philosophy, it's "empathy." That was Barack Obama's word. He wants empathy in judges.

Now, it's not just a word, it's a philosophy that was in Harvard Law School when Barack Obama was there. It was called critical legal studies, critical race studies. And Sonia Sotomayor subscribes to this way of thinking.

When you talk about ethnicity and gender under this idea, it suggests there are certain disadvantaged peoples and classes in the American population, and a judge should take that into account when making decisions. in other words, your life experience, things you know, what you know about what's fair and what isn't fair, that's entirely different from what people think of the traditional idea of judging, which is looking at the facts, calling it objectively the way the law determines, not in favor of disadvantaged classes of people.

VARNEY: Is that judicial philosophy, is that popular with voters at the moment.

HENNINGER: I don't think it's popular at all. I think that philosophy erodes people's trust in the fairness and objectivity of judges.

VARNEY: So the Republicans could score points by opposing that judicial philosophy?

HENNINGER: Well, they should at least...

VARNEY: And define themselves at the same time.

HENNINGER: absolutely, they should define it.

TARANTO: And they should have the confidence in their own viewpoint to put it forward and let the American people decide.

VARNEY: Collin, at the end of the day, she is approved?

LEVY: She certainly will be approved. I think we have to remember that the very oath that she takes of promises that she will do equal justice without regard to persons. So that's the key here.

VARNEY: Got it.

All right, thanks everybody.

Still ahead, bankruptcy looms for an American icon. Yeah, that's right. General Motors is about to become government motors in a plan that gives the U.S. Treasury a huge stake in yet another company. Any end in sight for this?

(COMMERCIAL BREAK)

VARNEY: It looks like General Motors is about to become government motors. The 100-year-old auto giant is poised to file for bankruptcy under a plan that would give the U.S. Treasury a whopping 72.5 percent stake in the company, a deal that could cost taxpayers if G.M. fails to recover.

We're back with Dan Henninger and James Taranto. Also joining us is "Wall Street Journal" Columnist Mary Anastasia O'Grady, and Senior Economics Writer, Steve Moore.

First to you, Dan, if I may, it's almost government motors. Are you happy with that?

HENNINGER: I'm not at all happy it, Stuart. Let's make no mistake about it. When General Motors declares bankruptcy, probably early next week, this is going to be a historic moment. I mean, it's a big deal. It's like the piece of the Grand Canyon simply collapsing down into the bottom of the ravine.

The government is going to basically own about 70 percent of General Motors and taxpayers are going to have upwards of $60 billion committed to this. And the irony is that after all is said and done, they're going to require the car companies to build small, hybrid, green cars. To me, that's one of the saddest things about this. The golden era of great American cars that we all grew up with is just fading into the sunset. And I think when people walk into the show rooms and see these tiny, little hybrids with about a hundred-inch wheel base, they're going to freak out.

VARNEY: But we've got to conserve oil and watch out for global warming. You know that, Dan Henninger.

How about you, Steve Moore? Is this a political power grab or what?

STEVE MOORE, SENIOR ECONOMICS WRITER: It is a political power grab. But you k now what, I have a feeling, Stuart, that this will be an albatross around the neck of the Obama administration. After all, does anyone believe that a car company that's owned by the United States government and the United Auto Workers — I mean, it's like Laurel and Hardy are running the car company now.

I think what's going to happen is this is going to become a money pit where we continue to just shovel tens of billions of dollars into this of taxpayer money. And I think, by the way, that within the next six months to a year, the American people are going to just say, enough, we're tired of throwing money, good money after bad into this car company, which is nowhere near profitability.

VARNEY: Mary?

MARY ANASTASIA O'GRADY, COLUMNIST: Well, the thing is, the union itself decided it didn't want to take the risk of a big equity position. That's interesting. It said, listen, give us preferred shares instead. We'll shrink the amount of equity we get. So tells me that...

VARNEY: That's a vote of no confidence.

O'GRADY: That is a vote of no...

VARNEY: In the future of General Motors.

O'GRADY: Yes. And I think as far as the bondholders go, who are very upset because they've been pushed down in the order of who is going to get paid first, and the union getting ahead of them, they have to look at the government putting $50 billion into General Motors or the government putting nothing in and just going straight to bankruptcy court. And I think, you know, you have to look at the bond holder's position and say compared to what? I mean, either way, there's not much left in this company. And I think they decided that they'd rather have the backing of the U.S. government.

TARANTO: But the government is putting $50 billion — that's $50 billion of our money. I haven't been investing in G.M. or at least I haven't been investing in G.M. by choice. The taxpayer is really getting the raw end of the deal here and we have no say in the matter until 2012.

VARNEY: Now, it's what $50 billion so far. No. What is it? $20, $30 billion so far with another $20 to $30 billion in the immediate future, but some after that, James? More after that.

TARANTO: That's what it sounds like unless the political pressure gets so great that the administration is forced to reverse course.

O'GRADY: It's also very interesting, Stuart, that the head of the UAW came out and said that our active members are going to have no loss in their base pay, no reduction in their health care, and no reduction in their pensions. So, you know, he's boasting to his union members that, look, we've got the taxpayer to pay and we came out with this deal.

MOORE: You know who else...

VARNEY: Go ahead, Steve.

MOORE: You know who else gets shafted here, in my opinion, is Ford Motor Company. Let's not forget, this is the auto company that still hasn't taken a dime of taxpayer money. Does anyone want to invest in Ford knowing they have to compete against General Motors and Chrysler that have an unlimited credit line to the federal government?

VARNEY: Well, look down the road a ways. When the government buys its fleets of cars, presumably it will buy government motors, G.M. fleets as opposed to Ford Motor Company. There's a real conflict in all kinds of areas.

Steve, I have to ask you, what is the exit strategy? You suggest that the taxpayer six months, 12 months down the road gets fed up and throws up their hands in despair, but how do we get out of this? What's the end game?

MOORE: The exit strategy is an exact right two words, because I don't think the Obama administration has any idea how they get out of this mess. And I really do think already the American people are throwing up their hands saying why are we bailing out auto companies, insurance companies, banks? What we need in this country, Stuart, is a Margaret Thatcher to privatize these industries rather than nationalize them.

VARNEY: Well said. That should be the last word, but it's not quite.

Dan has the last word.

HENNINGER: What's going on here is it's the long goodbye. This industry was not too big to fail, but too big to fail fast. And to Mary's point about the unions, what I think is going to happen is we are going to have a series of union buyouts over the ten years — the union members will be made whole and I think this industry is going to simply fade into the sunset at taxpayer expense.

VARNEY: I want to get back to — you wrote a great column on Thursday of this week. You really talked about American culture and what's happening to it in light of moving to 39-miles-per gallon, green, fuel- efficient cars? You think that American culture is really being reshaped in this era?

HENNINGER: Yeah, I think, you know, the car represents the sort of dynamism, can-do, something new around every corner.

VARNEY: Masculinity.

HENNINGER: Muscle cars, muscular cars.

VARNEY: It's masculinity, isn't it?

HENNINGER: Yeah. And I think some of the heart is going to be going out of the American idea when you have a car industry that's making nothing but small, hybrid grown cars. So, we're not really in it to win anymore. We're in it simply to survive.

VARNEY: I tell a lie, last word goes to Mary.

O'GRADY: Don't forget you have these foreign car companies in this country making cars that people like. And so G.M. and Ford are not going - - are not just going against some car companies outside of the country. They're right here in this country and they're profitable. So, you know, it seems to me like it would have been a much better plan on the part of an Obama administration to simply let that market blossom. I mean, Toyota has a successful company.

VARNEY: We've got two winners, the United Auto Workers Union and Toyota.

All right, thanks a lot everybody.

Still ahead, where have all the millionaires gone? That's what some governor or governors, I should say, that's what they're wondering. When we come back, a lesson in what happens when states soak the rich and the rich fight back?

(COMMERCIAL BREAK)

VARNEY: Call it the case of the missing millionaire. No, it's not the latest tabloid crime story. No, it's not. It's a lesson in what happens to cash-strapped states that try to balance their budgets on the backs of the wealthiest residents.

Steve Moore brings us case number one, which I believe is the state of Maryland — Steve?

MOORE: You know, Stuart, soak the rich never works because God created something called the moving van. And so, what we discovered in Maryland is that last year they tried to balance their budget with a huge tax increase on millionaires. And what happened was that Maryland has just discovered from their tax return data that one-third of the millionaires from the state of now missing. They can't find them. I think what happened in this case, and it happens all over the country, Stuart, is that when you soak the rich, people move out of the state. You lose your tax base. And so instead of gaining $100 million in new taxes from the soak the rich scheme, they lost $100 million, Stuart.

VARNEY: Mumford, they lost $100 million. What do you say to that, Mary?

O'GRADY: I wonder who the other two-thirds is. Maryland happens to be located right next to Washington, D.C., which is probably the only section of the economy that has been growing over the last couple of years. Over the past ten years, government employment rose four times faster than private-sector employment in this country. In other words, if you live in Maryland and you're governing, if you're governing Maryland, you think you can get away with this because, hey, this is the part of the economy that's growing, the government.

VARNEY: Well, they've not gotten away with it. Suppose in neighboring Virginia did exactly the same thing?

O'GRADY: Exactly. If Virginia catches on, like New Jersey caught the disease from New York — we use to think move to New Jersey. Then you can work in New York but you don't have the high tax regime. Now, New Jersey is thrown in with the same lot so...

HENNINGER: You know, Stuart, as Steve knows, some of the liberal think tank groups have done studies in which they argue, in places like New Jersey, where taxes are increased, you do not have that much out migration.

I think the real issue is whether we are going to have people engaged in wealth creation or wealth protection, because, no question, when you raise taxes like that, what do people start doing? Go to the tax accountant and say, how can you protect what I've already got rather than working. And there was a time when, in New York State, people would say, you were insane to allow yourself to die in New York State, because the estate taxes were so high. That's why Florida filled up. People had gotten out of the state where there was no estate tax.

VARNEY: Steve, I think you've got figures which states lost the most because of high state taxes. What's the numbers?

MOORE: Yeah, it's amazing. The three states with the highest tax rates in the country, New York, New Jersey, and California, are losing hundreds to thousands of their residents every year. And isn't it interesting that the three states with the highest tax rate have the biggest budget deficits. What is wrong with this picture?

(LAUGHTER)

VARNEY: James?

TARANTO: Well, there's also another problem with soaking the rich, which is it inevitably soaking people who aren't yet rich. One way you produce millionaires is by the value of the currency going down and therefore a million dollars doesn't go as far as it used to. We may see a lot of inflation with all of this out-of-control spending. So there may be a lot more people who find themselves in these tax brackets that were meant for the so-called rich.

VARNEY: But, Steve, isn't there a lesson here for federal taxation, for example. If you jack up the rate of tax on the wealthy, you end up — do you end up in fact increasing overall revenues over a period of years or what happens?

MOORE: Well, sometimes you do, but we certainly learned the lesson of the 1960's and the 1980's. We cut tax rates and we double tax revenues. The best way to generate growth, I mean, revenues and to balance the budget is to increase growth. And that's a lesson I think that Tim Geithner and Barack Obama haven't learned yet.

O'GRADY: That may be true except in Washington, D.C.

MOORE: That's true.

O'GRADY: The rest of the country has to actually be involved in productive activity. But in Washington, D.C., they can just grow the government and people will go to live there because there will be jobs. And the rest of us will pay for that.

MOORE: That's why I live here, Mary. It's the growth industry of America.

(LAUGHTER)

VARNEY: Dan, I want to come full circle and talk about American culture. What kind of American culture are we developing where we're no longer allowed to have muscle, masculine cars and tax we success to zero?

HENNINGER: Well, it is indeed trending towards something like what they have in Western Europe where most people spend most of their time protecting what they've got and trying to build. And as you well know, Stuart, Europe's most productive citizens often immigrate to the United States where they can express their talents in productive ways. And if you can't do that here, where are people going to go?

VARNEY: Steve, last word for you. Perhaps you have advice where I can go next. Any ideas?

MOORE: I was just going to say there's nine states that have no income tax. So, Stuart, you can move out of New York. You can move to Florida, Texas, move to New Hampshire, and not have to fill out a tax return.

VARNEY: Unfortunately, FOX studios are in Manhattan, New York, and I'm plugged in right here.

(LAUGHTER)

Thank you, everybody. Appreciate it.

We have to take one more break. And when we come back, of course, our "Hits and Misses" of the week.

(COMMERCIAL BREAK)

VARNEY: Time for our "Hits and Misses" of the week.

Dan, to you first.

HENNINGER: You know, Stuart, Vice President Joe Biden was giving a commencement speech this week at the Air Force Academy when the Colorado wind blew over one of his teleprompters. Let's take a look what the vice president had to say.

(BEGIN VIDEO CLIP)

VICE PRESIDENT JOE BIDEN: What am I going to tell the president when I tell him his teleprompter is broken? What will he do then?

(END VIDEO CLIP)

(LAUGHTER)

HENNINGER: You know, Biden took a lot of there-he-goes-again flak for this. But I'm beginning to wonder, who would you rather have in your face all the time, the relentlessly earnest Barack Obama or the relentlessly cheerful Joe Biden? Joe Biden is beginning to strike me as kind of the Dean Martin of American politics.

(LAUGHTER)

He's kind of like a political lounge singer. It doesn't make any difference whether he's in a room with a thousand people or just two people. He's just like a guy sitting around with his pals doing zingers.

VARNEY: I could pick up on this and run forever, but we don't have the time.

Collin, you're next.

LEVY: I'm giving a miss to Illinois Senator Roland Burris who's changing his story yet again about how he got that senate seat. There's a taped conversation that shows he said he'd raise money for Governor Blagojevich and told Blagojevich's brother that. And he's now saying that it wasn't pay-to-play because he never intended to pay up. So the good news is that Roland Burris is writing his memoirs and may get to hear the real, real story.

VARNEY: Got it.

James?

TARANTO: Last month, a student at San Francisco State University was working on a photo journalism project in a bad neighborhood when the man he was covering was murdered. Now he's refusing to cooperate with the murder investigation, citing a shield law. Well, who is protecting? He's not protecting his source who is dead. He's protecting himself. He is afraid to get involved. He's so afraid that he's taken down the blog and personal web site that showcased his photographs. It's understandable that somebody would be afraid, but this is a cowardly abuse of the journalistic privilege. A real journalist stands behind his published work.

VARNEY: And it's a big miss, is it not, James?

TARANTO: Indeed.

VARNEY: Steven Moore?

MOORE: Republicans have a great opportunity to win the governorship in New Jersey this November. Unfortunately, the Republican front runner, Chris Christy, is running around the state attacking his opponent's proposal for a flat tax for New Jersey. A 3 percent flat tax for New Jersey is exactly what this poor and declining state needs to get back growth and jobs. Shame on Chris Christy. And if Republicans do not run as the pro-growth, pro-liberty and flat tax party, they're going to lose more elections.

VARNEY: All right, Steve.

Thank you very much, everyone.

Remember, if you have your own "Hits or Misses," please send it to us at jer@FOXnews.com.

That's it for this week's edition of "The Journal Editorial Report." Thanks to my panel and to all of you for watching.

I'm Stuart Varney. Paul is back next week, and we hope to see you then.

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