This is a rush transcript from "The Journal Editorial Report," January 16, 2010. This copy may not be in its final form and may be updated.

PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," a showdown in Massachusetts that could have big implications for the Democratic agenda and the mid-term elections ahead.

And Obama's new bank tax. The president tries to get out ahead of renewed anger over big bonuses. But will the move end up costing you?

The NFL takes its game to the Supreme Court. Owners and players square off in a case that could reshape professional football.

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

The 2010 political season kicked into very high gear this week. And the bluest of blue states, Massachusetts, where the race to replace the late Senator Ted Kennedy has turned from assure thing for Democrat Martha Coakley to a toss up, with Republican challenger Scott Brown pulling ahead in a Suffolk University poll released late this week. A Brown win would be a crushing defeat for President Obama and Democrats, who would lose their 60-seat majority in the Senate as well as a crucial health care vote.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; and editorial board members, Dorothy Rabinowitz and Jason Riley.

So, Dan, some of the handicappers are moving this from sure thing to toss-up in a state that Barack Obama carried by 26 points. What's behind the Scott Brown surge?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, I think what's mainly behind it, Paul, is the fact that, as we know, the American people, at the moment, are not happy campers. And the last time I looked, Massachusetts was part of America, blue though it may be. OK?

(LAUGHTER)

There is a lot to point to what's going on here. Let's start. In some ways it reminds me of what happened in New Jersey, a very blue state, just elected a Republican governor. Those people were really disaffected. Duvall Patrick, the Democratic governor of Massachusetts, has approval ratings in the low 20s. The National Journal issued a poll late this week which said 50 percent of the respondents said they would definitely or probably vote against Barack Obama if he were running again. Now, we know that what has happened here is Obama has lost the Independent vote that elected him president.

Let's look at the numbers in Massachusetts. Yes, it's a blue state. Forty-three percent is Democratic. Forth-four percent of the people in the Massachusetts exit poll in 2008, the presidential election...

(CROSSTALK)

HENNINGER: ... were self identified as Independent. Those people are trending strongly for Scott Brown. I think that is what is behind the surge.

GIGOT: So this — so nationalizing this race is...

JASON RILEY, EDITORIAL BOARD MEMBER: That is what Brown has done a good job of doing is nationalizing it.

(CROSSTALK)

RILEY: It's not just about Massachusetts. It's become about President Obama and Democrats controlling all of the levers of power.

GIGOT: Check and balance.

RILEY: And this very liberal agenda the Democrats are pursuing and Brown is saying, yes, I can be a check on that.

GIGOT: Very liberal agenda.

Specific issues helping or hurting Brown?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: It's hurting Martha Coakley. Number one, having yourself anointed as the sure thing is not a very good way of winning the approval of the people of the state, number one. Number two, her obedient recitation of every one of the sacred writ pieces of the current administration, you know, civil liberties for Guantanamo prisoners, every one of them. And there's a colorlessness about Martha Coakley that does not help.

GIGOT: What about health care, Jason? Massachusetts passed a bill that was much like Obama-care. Mitt Romney, the Republican, was in favor. Now, about 98 percent of Massachusetts residents are covered. Helping or hurting Brown?

(LAUGHTER)

RILEY: It is helping Brown and hurting Coakley, who said she is for everyone. Everyone, Coakley is not the only candidate or incumbent facing this problem. She is being — she is saying that — or she is being told that she should not vote for this bill unless Massachusetts gets the Nelson deal. That's what everyone is...

GIGOT: For Medicaid.

RILEY: For Medicaid.

GIGOT: Special deal for Nebraska on Medicaid and which Democrats are talking about spreading it to other states, which means that Massachusetts, which already covers people, would have to be a net payer for all of these other states.

RILEY: Brown seems to be in tune with the state on this. A recent poll came out and showed 51 percent of people in Massachusetts now oppose the health care moving through the Senate.

GIGOT: So the other issue is, the other factor is intensity. Who wants to come out and vote?

You have, as you said, Dan, a lot of Republicans, not too many of them are in Massachusetts. Fifteen percent. And conservatives are fired up. They are going to turn out on a winter day. The question is, will the Democratic machine, which is very powerful in Massachusetts, particularly union-based, public employee unions, will they come out now that they have been mobilized to know they are in trouble?

HENNINGER: They will. They have to. They have I think the organizational ability to produce votes next Tuesday. The unions give their people a day off. They will be out there putting them in vans, taking them to the polls. They know they have to do that big time.

GIGOT: Let's run a Martha Coakley ad that shows how they are attempting to fire back at Scott Brown.

(BEGIN VIDEO CLIP)

AD NARRATOR: Brown, really a Republican, in lockstep with Washington Republicans. He will block tougher over site of Wall Street, give more tax breaks to the wealthiest, oppose new prescription coverage for millions of seniors. Brown even favors letting hospitals deny emergency contraception to rape victims. He lacks understanding and seriousness. In times like these, we can't afford a Republican like Scott Brown.

(END VIDEO CLIP)

GIGOT: There's an uplifting message, Dorothy.

RABINOWITZ: Yes.

GIGOT: I love the Limbaugh touch.

(LAUGHTER)

Is this effective?

RABINOWITZ: No. There's a huge Independent vote in Massachusetts. The point is this is also familiar. You would have to be more magnetic than Martha Coakley is to get away with this by-rote assault and invocation. This has been a nonstop attack of trying to associate Scott Brown with Republicans.

GIGOT: National Republicans.

RABINOWITZ: And it does not help to be marching out there with the widow of Ted Kennedy, which is another one of those things had you better be good at. All of this stuff goes down the craw of Independent voters.

GIGOT: That ad is about mobilizing core Democratic voters.

RILEY: I think it's also worth noting, Paul, that Republicans can win just by making it close because it will put a scare into Democrats nationally. Massachusetts is a very, very blue state, all ten congressmen, both Senators, the governor, all Democrat. Last time they sent a Republican to Washington was 1972. Just by making it close, they will send a message to Democratic candidates nationally.

GIGOT: I think there is a danger that Brown could be peaking too soon here, Dan. A weekend in politics is eternity.

HENNINGER: Well, that's possible. There seems to be something, like I said, very similar to New Jersey going on here, a deeper kind of disaffection among Independent voters. I think it will be very close.

Jason is right, the message has already been sent to the national Democratic Party.

GIGOT: All right, Dan.

When we come back, just in time for bonus season on Wall Street, the president plans to slap big banks with billions in new taxes. It might make you feel better, but who winds up paying in the end?

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: We want our money back. And we're going to get it. And that's why I am proposing a financial crisis responsibility fee to impose on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street. If they are in good enough shape to pay massive bonuses, they are surely in good enough shape to pay back every penny to taxpayers.

(END VIDEO CLIP)

GIGOT: President Obama announcing plans this week to slap a tax on big banks as a way to recoup some of the $120 billion the government expects to lose from the financial bailout. The announcement comes as Wall Street prepares to reward top employees with record bonuses, a move sure to infuriate voters still reeling from a shattered economy and double-digit unemployment.

Columnist, Mary Anastasia O'Grady; and assistance editorial page editor, James Freeman, joins the panel.

All right, James, the president has been saying, Congress has been saying banks, lend more, lend more. Explain to me how a new tax on banks helps lending?

JAMES FREEMAN, ASSISTANCE EDITORIAL PAGE EDITOR: That's going to be tough to explain.

(LAUGHTER)

It's going to be tough to figure out, because some people are saying it's going to cut profits by as much as 5 percent. It's a .2 percent tax on their uninsured liabilities.

GIGOT: Which means their non-deposits by you and me.

FREEMAN: That's right, non-deposits. And if you are an insurance company, not the insured premiums people pay for their policies but — you know, the banks are going to have to come up with this money. Where they get it is the question. Who will end up with this bill? It going to be the customers?

GIGOT: That's the question. That's the question I want to ask Mary.

Who pays a tax like this? There's a lot of literature that says the corporate tax isn't ever paid by corporations anyway. Who do they pass it on to?

MARY ANASTASIA O'GRADY, COLUMNIST: They pass it on to customers. And I think that they're all...

GIGOT: Shareholders?

O'GRADY: Exactly. I think...

GIGOT: Employees?

O'GRADY: Well...

GIGOT: A few.

O'GRADY: It's like me running a bill up and saying, you have a lot of debt here, I think you should pay me to fix it.

(LAUGHTER)

I mean, the same people end up paying.

What is disturbing about this is it doesn't go to the source of the problem. Fanny, Freddie and government regulations is what encouraged the use of subprime and those alt-A mortgages that were then off loaded to the government, and also the rating agencies, which were assigned by the government.

GIGOT: Standard & Poor's, Moody's —

O'GRADY: None of that is addressed here. This is just sort of like demagoguing the banks because it feels good and because the big bonuses are coming this week.

GIGOT: Here is something I can't explain, James. Fanny and Freddie are exempt from the tax.

FREEMAN: Right. Right.

GIGOT: How do you justify it?

FREEMAN: You mentioned the government is saying they are going to lose $100 billion roughly on TARP.

(CROSSTALK)

FREEMAN: ... said the losses of Fannie and Freddie could go over $400 billion. But we're not going there. We are not going to talk about Fannie and Freddie.

(LAUGHTER)

GIGOT: Those loses were not...

(CROSSTALK)

GIGOT: These banks were not the banks that lost the money, correct? I mean, they're lost money...

FREEMAN: They are not even the ones that borrowed the money.

GIGOT: The TARP money.

(LAUGHTER)

FREEMAN: You could be running a $50 billion-dollar institution, never took any TARP, never got the guarantee from the FDIC, still paying.

(LAUGHTER)

FREEMAN: For what?

HENNINGER: Let's face it, the whole point of this tax and the populism the president has been engaging in is to scapegoat the private sector and deflect attention away from Washington. Washington contributed nothing to this problem apparently. The one person, a kind of Cassandra at the commission hearings, was Sheila Bair, of the FDIC, who said Washington did contribute. She was asked whether regulators had looked the other way during periods of high profitability. She said that may be true, but Congress also did the same thing. And then she said, Congress is still putting pressure on the FDIC to forebear the closure of banks out across the country right now.

GIGOT: This money is not, the tax, is not going to be kept into some fund somewhere, into, if I dare use the word, "lock box," and therefore spent if we have a future bailout. It's going right into the Treasury. And Congress can do what they want to do with it, correct?

FREEMAN: Yes. I think the — when people look at this, the premise - - I think the unspoken premise is this is insurance for the next too-big- to-fail bank that Washington feels it's got to rescue.

GIGOT: Right.

FREEMAN: But you're right, the money is just going to be spent on running up whatever the Obama agenda and the deficits require.

GIGOT: Here's the question, Mary, that I want to ask you about. This is where the popular anger comes in. The banks are making record profits. Do they deserve these bonuses, having been bailed out? And let's face it, having what everyone assumes is a too-big-to-fail guarantee.

O'GRADY: It feels good, but it would be better if the federal government would come up with an agreement which would allow, in the future, when an institution gets in trouble, it could go through a bankruptcy process and fail. That's not what happened here. Too-big-to-fail still exists.

And on Christmas Eve, the Treasury decided to remove the $400 billion cap on keeping Fannie and Freddie solvent.

GIGOT: Yes, but...

O'GRADY: You still have the Fannie-Freddie problem. You still have too-big-to-fail. And you have this tax which is supposed to make us feel better.

GIGOT: That's a better solution. But is it just? Is it right that bankers having — making the bonuses because the taxpayers came to the rescue? Should they keep the bonuses?

Any takers?

(LAUGHTER)

HENNINGER: Well, it doesn't particularly — I mean, there are bonuses and there are bonuses. Should the top-five guys be getting $20 to $50 million? That's what the focus is on. Most of the banks have employees of several hundred, if not thousands of people, who, once again, like the AIG, had nothing to do with the problem. Should they be deprived of their bonuses? I just can't see that's defensible at all.

FREEMAN: These huge bonuses all go away if you let them fail. They don't have the advantage. There don't have the lower cost of capital versus little banks that are not too-big-to-fail. You can solve the problem, Washington, if you are willing to let them fail.

GIGOT: And maybe put limits on leverage, the amount of debt they can take on.

O'GRADY: Yes. I mean, you can't un-fry an egg and they are trying to give the political cover here.

It would be so much more important to try to fix the system so it doesn't happen again, especially with the fed having its foot on the accelerator.

GIGOT: On the monetary policy accelerator.

O'GRADY: Yes.

GIGOT: Which just creates a new subsidy for credit with zero interest rates as far as the eye can see.

O'GRADY: Bubble, bubble.

(LAUGHTER)

GIGOT: When we come back, the NFL takes its game to the Supreme Court. Will the justices allow the league to behave like a normal business?

(COMMERCIAL BREAK)

GIGOT: The National Football League took its game to the Supreme Court this week where the justices heard oral arguments in a case that's pitting owners against players. At issue is a lawsuit challenging the league's decision to give Reebok exclusive rights to manufacturer hats, T- shirts and other gear bearing team logos.

The bigger question is whether the NFL should be considered a single entity rather than a collection of 32 independently owned teams, thus, exempt from antitrust laws. Labor unions, including the one representing NFL players, contend a ruling in the league's favor will give it too much power at the expense of the athletes and fans.

Senior editorial page writer, Colin Levy, joins the panel.

Colin, you followed this closely. Who do you think gets the better argument?

COLIN LEVY, SENIOR EDITORIAL PAGE WRITER: Well, I think the NFL definitely has the better argument. When you look at this question of whether or not the NFL can act in what we're talking about, a normal business, what you are really saying is, is this a collection of 32 businesses, the 32 NFL teams, or one group that has — they all have sort of a common interest. It's very clear when you look at it that none of these teams can offer a product on their own. In effect, they need each other to create the broader entertainment product that competes with baseball and hockey and any number of other things in the entertainment space.

When it comes to the question of the trademarks, which is the issue of the Reebok deal, that, too, is part of the same issue. Because they are essentially, when you think about what you do with a logo on a T-shirt or a hat, you are essentially advertising the league.

GIGOT: Right.

All right so, Jason, do the unions have any kind of a case here? There's no question, like if the league has this power to negotiate itself as one entity, then the players might lose some of their bargaining.

RILEY: Yes. They're concerned that the league will have too much leverage when it comes to free agency, when it comes to negotiating broadcast rights and so forth. That's their concern here.

But I agree with Colin that, for the purposes of selling apparel, you are talking about a single entity here that has to compete in the entertainment space with a bunch of other groups. So, no, I don't think the union has much of a case to make here.

GIGOT: What they do share — the NFL shares revenues across the board. They divide that up among the player's agreement to the players. They get, depending how you calculated, 51 percent, 61 percent of share revenues.

HENNINGER: That's right, Paul. This is about sports economics, which is something of an oxymoron. I read through the oral arguments. It was very clear that the justices were having a very difficult time squeezing what they know about antitrust law into this case. We run into that every time we get into that subject. Several weeks ago, on this program, we talked about whether the sports playoff, the college playoff bowls are unfair to smaller colleges. We can talk about whether college basketball players should be paid because of all of the revenue they produce.

Justice Stevens, I think, came close to getting to the nut of it when he said to the lawyer, don't you think it is true that the NFL, the way it is currently constituted, does, in fact, increase athletic competition on the field? Don't you agree that's what all of the people in the stands are there to see, increased athletic competition. If that's true, you are saying what's crucially important here is the happiness of the fans.

GIGOT: Consumer benefit.

HENNINGER: In other words — consumer benefit. That's what all sports is about — keeping the fans happy.

RILEY: That's what antitrust law is supposed to be about. Where is the harm to consumers here? I don't see it.

But it's interesting, Dan, it doesn't look like most of the justices are going to side with the NFL on this.

GIGOT: Well, I want to ask Colin about that.

LEVY: Yes.

GIGOT: You follow that.

LEVY: Yes.

GIGOT: Colin, let me ask you about one union argument though, which is this — they say, if the NFL wins here, they will have the ability to fix prices across the board and not just in terms of player salaries but perhaps how much you can sell a team for and coaches and so on and so forth. That would be an extraordinary power, would it not?

LEVY: Yes, but that's also a very unlikely outcome. I think having read and listened to the oral argument, if you listen to where most of the hostility came from, it was from fairly predictable areas. Justice Breyer and Sotomayor, in particular, were anticipated to be hostile to the NFL argument, and they were.

What you can also see here is this is a situation where they could also choose to do a very narrow ruling and not make this a broad ruling, where the NFL is a single entity for all purposes, but is a single entity to merchandising and trademarks.

RILEY: What the NFL is really fishing for here is the antitrust exemption that Major League Baseball has. I don't think they're going to get it.

GIGOT: All right, Jason, last word.

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

(COMMERCIAL BREAK)

GIGOT: Time now for our "Hits and Misses" for the week — Jason?

RILEY: This is a hit for the nation's two newest governors, Chris Christie of New Jersey and Bob McDonald of Virginia, both of whom named strong school-choice advocates to head their education departments recently. Schindler was chosen by Chris Christie.

GIGOT: Fred Schindler.

RILEY: Fred Schindler, the former Jersey City mayor, was chosen by Chris Christie. And McDonald chose a gentleman named Gerald Robinson, who runs the Black Alliance for Educational Options. This is good news for all kids in both states, but it's especially good news for low-income kids stuck in bad schools who need a state education official willing to take on the status quo.

GIGOT: All right, Jason, thank you.

Colin?

LEVY: I think Google deserves some credit this week for telling China it is no longer going to be an enabler of censorship there by limiting search results on its engines. The decision came as a result of a hacking attempt. It is important because Google really, if there is any company with enough political clout to make China pay a political price, its Google with its groups of the young, educated and digitally empowered. So I think China may be wondering what it got itself into here.

GIGOT: All right, Colin, thanks.

And, James?

FREEMAN: This is a hit to legal immigrants and very much Haitian immigrants in the city of New York. A new study shows the legal immigrant population generates a third of our economy. Their incomes are rising. They are chasing the American dream. And let's hope that, this time, New York City will welcome more folks from Haiti who can continue to thrive here.

GIGOT: Yes, but, James, it's such a shame Haiti has lost so much of its human capital over the years because the people don't have opportunity in Haiti. That's part of the problem. When you come to New York — they leave their home country. There isn't enough human capital and talented people to really make that place prosper.

FREEMAN: It is a shame. But it really shows you the way forward for Haiti. You have this Haitian community in New York thriving under the rule of law, contributing so much to our economy. You look at Haiti, has not enjoyed that, thanks, in part, to policies of the Clinton administration. Let's hope that, coming out of this tragedy, we see reform in Haiti that will allow them to...

GIGOT: Yes, Jason?

FREEMAN: We can't stop national disasters from happening, but we can do something about how countries can respond. We know that prosperous countries respond better. That is what we need to do in the wake of this, is to make —put policies in place that allow for a more profitable Haiti in the future.

GIGOT: And thank heaven for the U.S. military, coming to rescue again with those extraordinary resources and compassion.

All right, that's it for the "Journal Editorial Report."

Thanks to my panel and especially to all of you for watching.

I'm Paul Gigot. We hope to see you right here next week.

Content and Programming Copyright 2010 Fox News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2010 CQ Transcriptions, LLC, which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation .