This is a rush transcript from "The Journal Editorial Report," January 23, 2010. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report." Obama's next move. How will the White House respond to Republican Scott Brown's victory in the Bay State? We'll preview next week's State of the Union address.

And handicap. The chances of still passing health care reform.

Plus, a landmark Supreme Court decision up ends decades of campaign finance law. What it means for the mid-term elections ahead.

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

First up tonight, Obama's next move. Will Tuesday night's stunning upset in Massachusetts cause the president to shift to the center or further to the left?

Democratic pollster Doug Schoen, joins me now with his take on the lessons learned from the Bay State.

Doug Schoen, welcome.

DOUG SCHOEN, DEMOCRATIC POLLSTER: Thanks, Paul.

GIGOT: Good to have you back.

So you've worked in the White House, the Clinton White House, after a defeat like this. Tell us about the debate inside about how to respond?

SCHOEN: Well, in the Clinton White House, Paul, there was no debate. There was a clear recognition by the president he had to move to the center, be pro balanced budget, fiscal discipline, job creation, moderate social.

GIGOT: After 1994.

SCHOEN: That's correct. I think in this White House, as your question suggests, there will be a huge debate between the populous on one hand led by people like David Axelrod.

GIGOT: Who is the chief White House political adviser.

SCHOEN: Yes, he is, and the counselor to the president, and other more pro business, centrists like Rahm Emanuel, who were there in '94, '95, '96, and saw how repositioning the president got him reelected.

GIGOT: Let's take an issue like health care, and how does that debate manifest itself, the centrists, the people that want to move to the middle. What do they do? Do they try to get some Republicans on board and then craft a bipartisan plan?

SCHOEN: They should. Their position is the Republicans don't want to do bipartisanship, so hence, incrementalism is the word of the day. That makes sense if they can get insurance reform through, cover preexisting conditions and portability and the like.

GIGOT: Smaller bits.

SCHOEN: Smaller bits. And if they can get the Republicans in, Paul, it not only pays dividends to the country, it pays dividends politically.

GIGOT: Populist on health care, what does that mean? The president has already attacked the health insurers. He attacks the special interests all the time. What would it mean to — how can you get anymore populous than he's been?

SCHOEN: There are people on the left in this White House and particularly in the Congress who say he hasn't been populist enough. You have to attack the big banks, the big insurers and the big polluters, and not abandon the so-called public option, and be robust, aggressive on health care and other issues as well.

GIGOT: But you couldn't get the public option. They couldn't get the public option through the Senate as it is. Are they saying double down now and you'll move public opinion more so that you can finally get it through?

SCHOEN: The argument, Paul, is you have to give people a choice, a real choice. And frame the elections as the Republicans who are being obstructionist and the Democrats who have had clear social agenda, that is unambiguous and involves an overhaul of the economic and social structure.

GIGOT: But in terms of health care, this would mean giving up on getting anything this year and putting it to a referendum to the public in November, and then hoping to do it next year? Is that the calculus?

SCHOEN: It would be let's try to do something, and if we can't, make it clear what we stand for, and what the Republicans, by siding presumably on the side of the banks and the insurance companies in this instance, are obstructing. And give people a clear choice in November.

GIGOT: What do you think the administration's big mistake was on health care?

SCHOEN: Oh, I think their big mistake in the gypping was not getting the Republicans in the room, as we did in '95 and '96, finding areas of common ground and making it clear that on insurance reform, on cost control, on record keeping and on incrementally expanding coverage, that there was common ground. If the president had done that, the Republicans would have been forced to go along, particularly at the start of the administration.

GIGOT: You know, what makes me amazed is we've seen this movie twice before. We saw it in the early part of Jimmy Carter's administration and the early part of, particularly, Bill Clinton's administration. You bow to the congressional left with big Democratic majorities and it hurts you until you either recover, in the case of Bill Clinton, or you don't, in the case of Jimmy Carter. Why didn't they learn the lesson of that this time?

SCHOEN: Because they had big majorities, seemingly veto-proof majorities in both the House and the Senate. And the Democratic left in the House, Paul, is I think, we both agree, is so powerful that the president couldn't really resist them, resist that. By not resisting, he fell into the same trap you spoke of.

GIGOT: All right, who's going to win this debate inside the White House? Which way is the president going to go?

SCHOEN: Well, I think he's having to vacillate back and forth.

(LAUGHTER)

But the ultimate winner, I think, will be populism, because I think the forces of power, the unions, SCIU, the left, are going to make the case that we have to present that clear choice I was speaking of before, on financial reform, on health care reform and on the environment. And if they give the voters a clear choice in November, I think it's going to be a clear, unambiguous defeat for that...

GIGOT: Wait a minute, here. When I talk to a lot of liberals, they say it worked Franklin Delano Roosevelt, '32-'36. It worked for Harry Truman in 1948, why can't it work again?

SCHOEN: When you look at suburban swing voters, they have been rejecting these kind of policies and Democratic candidates who espouse them since November of '09 by two and three margins.

GIGOT: That didn't work in Virginia. Although the left would say they didn't try it in Virginia or New Jersey. And Coakley didn't try it. She was in the lead and she didn't try it in Massachusetts?

SCHOEN: Well, I suggest they tried too much of it.

(LAUGHTER)

And by not really being able to convince people that these populist policies make sense, they suffered a big defeat at the ballot box.

GIGOT: What would be your recommendation?

SCHOEN: A centrist policy emphasizing fiscal discipline, reducing the deficit and most importantly private-sector job creation. Unless we do things like that, payroll tax holiday, aid to small business, and immediate steps to stimulate job creation in the private sector, we're not going to succeed. The Democrats aren't going to succeed.

GIGOT: So a focus on the economy, jobs and deficit reduction, which was really the focus of Bill Clinton's first term.

SCHOEN: It was the focus of...

GIGOT: At least the second two years of that for sure.

SCHOEN: The second two years of Bill Clinton's first term. And also John F. Kennedy's economic policies. He supported tax cuts, a rising tide will lift all boats. There is a legacy in the Democratic Party for fiscally prudent, pro business, pro job creation policies. They've got to get back to that and get back to that quickly with fiscal discipline, if they don't, they'll be cooked in November.

GIGOT: All right, Doug Schoen, thanks so much for being here.

SCHOEN: Paul, thank you.

GIGOT: We'll see if they follow your advice.

When we come back, the future of Obama care. Did Speaker Pelosi deal the death blow to Democratic reform plans this week? Our panel weighs in after the break.

(COMMERCIAL BREAK)

GIGOT: The big question after Tuesday is what will happen to President Obama's top priority of health care reform? House Speaker Nancy Pelosi said late this week that she lacks the vote to quickly move the Senate bill through the House, taking off the table what many saw as the last best chance to save the legislation.

Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger; senior editorial page writer on health care Joe Rago; and Washington columnist Kim Strassel.

All right, Kim, so the question everybody wants to know the answer to, has Speaker Pelosi buried health care this week?

KIM STRASSEL, WASHINGTON COLUMNIST: You know, what we do know is that the strategies that they were using, the bills in the House and Senate, they are done. You know, the Senate can no longer pass what the House had put forward and had no desire to. The House Speaker Pelosi said they cannot pass the Senate bill. The question now is shall what can they salvage instead. There's a couple of options. One...

GIGOT: It's not dead yet. Are you saying it's not dead yet?

STRASSEL: I'm saying that what they've got out there at the moment is stuck. It's not going anywhere. So the question is how do you maneuver and change and try to salvage something different out of that? And that's where we're headed at the moment.

GIGOT: All right. The first question, can she, Speaker Pelosi, rally enough Democrats in the coming weeks, particularly if the president gives a good State of the Union address next week, says we need to fight lame Republicans. Can they rally enough votes to get the Senate bill through the House?

STRASSEL: No, I do not think so. What you've got right now is a number of House Blue Dogs who are very worried about what this means for November. They're looking at the Senate Massachusetts race and they see that magnified in their own races.

(CROSSTALK)

GIGOT: These are the moderate Democrats and they're not going to come around.

STRASSEL: That's right. You also have a lot of House liberals who are detest elements of the Senate bill, in particular this Cadillac tax. The entire party is worried about passing legislation that now has the stigma of these back room deals, special payoffs to certain Senators. So I don't see this bill going anywhere.

GIGOT: What about this other idea people are talking about, Joe, which is Senate reconciliation, a buzz word, Washington process word. What it really means is try to get some parts of the bill through with 51 votes, not 60, as they have tried to get — needed in the past. Is that likely?

JOE RAGO, SENIOR EDITORIAL PAGE WRITER ON HEALTH CARE: Right. Well, that basically entails starting over. It's the same thing for another option, which is a stripped down bill where you might see a modest coverage expansion, some insurance — well, reforms is what they're called in the beltway.

GIGOT: Right.

RAGO: But they're pretty destructive. But at that really — that requires you either go back to the committees, if not hold hearings, at least hold votes. There's all sorts of procedural trip wires everywhere. And they have to decide if they want to spend another two months, three months on a health care plan that's really unpopular, and the well is poisoned in a lot of ways, or just do nothing and move to jobs and austerity budget.

GIGOT: Dan, the other option, and I think probably the best one politically, would be to take Doug Schoen's advice, go back to Republicans, see if you can get a half dozen or maybe ten or so on a stripped down bill. and then try to pass that in a bipartisan fashion and salvage something from that. Is that possible?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I think it is possible. It's — it will be difficult for the reason that Kim suggested that there are liberals who are dug in and would refuse to do that. But your suggestion raises what I think is the big X factor going forward and that is the new Senator, Scott Brown. Now, he's a freshman Senator.

GIGOT: He's only one vote.

HENNINGER: He's only one vote, but this guy has a moment right here. He is somehow representing the voice of the people. Otherwise, why are we having this conversation? That's what Scott Brown just did in Massachusetts. And whatever he says on this bill, I think, is going to carry a lot more weight than any freshman Senator previously. And if they can find a way to pull him into the compromise you're suggesting, that might be a path forward for them.

GIGOT: Kim, what about the — Olympia Snowe, the main Republican voting for the bill coming out of the Senate Finance Committee, before she voted against it on the Senate floor when it moved less. Is there a critical mass of Republicans, a half dozen maybe, who the president could maybe get on a stripped down bill?

STRASSEL: There might be. There's two problems. The first problem is that so much in this bill is connected to other parts of the bill. Take, for instance, insurance regulation. One of the reasons that the business community signed on to insurance regulation was because they felt they were going to get money back because of this individual mandate, which required people to buy insurance.

GIGOT: More customers.

STRASSEL: More customers. You get rid of the individual mandate and you still try to do insurance reform and you have a very angry business community that turns against this legislation, too. So it's hard to pluck pieces out of it.

The second problem is a lot of Republicans are just simply angry about the way that they were cut out of this process. And they don't any longer necessarily see any upside in now deciding to play nice. So this is the problem the administration's got.

GIGOT: So the price for Republicans just went up?

RAGO: Yes. No, I mean, it's going to really require starting over. It's going to require tearing up this bill that they started from the left, and starting from the center instead, which will mean instead of mandates, you have to go to incentives. And you have to rethink sort of the entire ideological and political thrust of the last year.

GIGOT: That's hard to do in an election year, Dan.

HENNINGER: Exactly.

GIGOT: In fact, I can't remember a time when a party did it.

HENNINGER: Democratic Congressman Chris Van Hollen of Maryland, who is head of the Democratic Campaign Committee, wants out of this. He said, we want to talk about jobs. We want to move forward. And I think there are a lot of Democrats who just wanted to get this thing off the table.

GIGOT: Get this carcass out to the side, push it out of the side.

HENNINGER: Exactly.

GIGOT: Talk about jobs and the economy.

All right, Dan, thanks.

When we come back, the Supreme Court strikes a blow for free speech and up-ends decades of campaign finance restrictions. What it means for the 2010 mid-term elections, next.

(COMMERCIAL BREAK)

GIGOT: In a stunning reversal of the nation's federal campaign finance laws, the Supreme Court ruled this week that corporations, unions and nonprofits can spend freely to support or oppose candidates for public office. In a 5-4 decision, the court threw out parts of a 63-year-old law that prohibits companies and unions from using money from their general treasuries to produce and run their own campaign ads. And the justices struck down part of the 2002 McCain-Feingold law that banned labor and corporate-backed issue ads in the closing day of election campaigns.

President Obama blasted the decisions, calling it a victory for big oil, Wall Street and other interests, and said he would work with Congress to craft, quote, "a forceful response."

Opinionjournal.com editor James Taranto, joins us; and senior editorial page writer, Colin Levy.

Colin, so the president is riled up about this. Should he be upset? After all, unions and corporations are both going to benefit from this.

COLIN LEVY, SENIOR EDITORIAL PAGE WRITER: Right, I mean, I think that's the key point. The idea that this is a decision that exclusively benefits conservatives is actually ridiculous. Even if you just look at corporations. Corporations sure don't speak only with one voice, and unions, certainly, who are going to speak a lot more and are generally very politically active are going to benefit from this. You're going to have a situation with a lot more political speech, but that new political speech is going to be very diverse, no question about it.

GIGOT: Now, corporations will not be able to give directly to individual candidates, but what the unions will be able to do is donate to independent groups that can then spend on behalf of a certain issue or something else.

But this is a big, big hole in campaign finance law that's been developed since the last 25, 30 years since Watergate. Can that kind of — can those restrictions even survive this — other restrictions survive going forward?

LEVY: Well, I think it's going to be, become increasingly difficult. But you make a good point. One of the things you have to remember here is this is not as though all the architecture of campaign finance has been demolished. You still have individual contribution limits. You still have limits on the way that, you know, candidates can coordinate with parties. So — and you still have disclosure limits. The Supreme Court upheld the disclosure limits yesterday. So the real ideal here would be to keep the disclosure limits and basically get rid of everything else. Get as much speech out there as possible.

GIGOT: James, what do you think this means for the future of campaign politics?

JAMES TARANTO, OPINIONJOURNAL.COM EDITOR: One reason the politicians are upset about this is it makes it a lot harder for them to control their message. As you say, the supply is only independent expenditures. The limits on donations to campaigns are still in place, as are the limits on so-called soft money in the McCain-Feingold donations to political parties. So this means that these independent expenditures are going to have a lot more to say. And it's harder for politicians. If Congress were smart, they'd reregulate the whole thing.

GIGOT: The dissenters made the case, Dan, that this is going to corrupt American democracy because the wealthy interests are going to have an enormous sway now.

HENNINGER: Right. I find this one of the most fascinating aspects of the decision, Paul. Justice Stevens wrote this famous 90-page dissent in which he argued that the founding fathers basically didn't like corporations.

GIGOT: So they shouldn't have free speech.

HENNINGER: So they shouldn't have free speech. Consider the reaction on the political side. Senator Schumer says he is going to introduce legislation immediately to modify the decision. And President Obama himself denounced this decision in favor — basically what they're saying is corporate America, the private sector, is the enemy. We don't like these people.

But corporate America has shareholders and employees and basically, as Justice Scalia argued in his concurrence, is part of the free market economy that is basically the system that we've gotten in this country. Why are they going to get on the wrong side of that?

GIGOT: Colin, this decision also levels the playing field between corporations because if, before you had an exemption under the law if you were a media company, like News Corp, our own, or The New York Times company. Nobody says we can't write editorials opposing or endorsing candidates. But if you were another kind of corporation, you didn't own a newspaper, you didn't own a radio station, then you were subject to the limits.

LEVY: Right, I mean, this is a very awkward thing that those rules have created. This is a situation where previous laws have said certain people can speak and certain people can't speak. And that's what the Supreme Court really came out against yesterday.

And Dan makes a good point. You know, the idea here is that corporations are not illegal. And as long as they're not illegal, they should have those same rights that individual have. And that's what the Supreme Court established.

TARANTO: And Justice Kennedy made the point, in his opinion for the court, that there's no basis in the constitution for distinguishing between media corporations and other corporations. So if this is constitutional, Congress could regulate the press directly.

GIGOT: That's right. And some of the restrictions here could get to the point of regulating books that are about a candidate.

TARANTO: Books. Well, this case involved...

GIGOT: By a corporation.

TARANTO: This case involved a movie.

GIGOT: A movie. So anybody, George Soros, in fact, who is a liberal financier, Colin, who supports Democrats, was investigated, in fact, by the federal election commission in 2004, as you reported this week, about what — whether he was illegally influencing campaigns.

LEVY: Yes, that's right. This is something that can affect — certainly affect liberals as much as it can conservatives. We know there's been all sorts of very popular New York Times best-selling liberal books out there. And so that's something that they should be concerned about.

GIGOT: What does the case, the ruling, tell us about the Roberts court, James? Because it was supposed to be an incremental court, and here they've overturned two precedents. Is this getting — are they finding their, their center of gravity as a conservative court?

TARANTO: Well, to some extent. These were precedents in which Justice Kennedy, who is always the swing vote, was a dissenter. One other thing I think it tells you though is the four liberal justices were in the dissent here. Liberals have largely — the idea that free speech is a liberal cause has largely gone by the way side.

GIGOT: Really? All right, James, thank you very much.

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" of the week — Dan?

HENNINGER: Paul, a hit to Secretary of State Hillary Clinton who gave a speech making Internet freedom a foreign policy priority for the United States. This is an issue, of course, because Google fears its system in China was hacked into, as well as Iran's efforts this year to suppress the Internet curing a pro democracy demonstration there. What's interesting, back in 1998, at the height of the Clinton scandals, Hillary Clinton said that the Internet had to be re-thought. Now, if, in fact, today, because of what's going on, she has seen the larger social freedom issues involved here, this is a huge hit for Secretary Clinton.

GIGOT: All right.

James?

TARANTO: I have a miss for the Transportation Security Administration. Twenty-two-year-old Rebecca Solomon was going through airport security in Philadelphia when a TSA agent pulled a plastic bag containing white powder out of her carry-on, and demanded to know where she'd gotten it. She had no idea. It turned out, the TSA guy had planted it on her as a joke. Now the TSA says this guy has lost his job, but they can't name him because of privacy laws. I think they should bring criminal charges simply so that he can be named and made an example of.

GIGOT: All right, James.

Kim?

STRASSEL: A super slimy miss to former presidential candidate, John Edward.

(LAUGHTER)

This is a guy who has an affair, vehemently denies the affair. When he finally gets caught and has to admit it, apparently convinces an aide to step forward and say the baby who came out of it was his. And only now is admitting that, indeed, the baby is Mr. Edwards'. So the most appalling thing about this too is that he appeared to be going all the way to the presidency, lying and covering this up, if the voters would only let him.

GIGOT: Yes. And all the aides who knew about him, his former aides, and didn't explain and tell people, they should be banned from politics.

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

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

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