This is a rush transcript from "The Journal Editorial Report," July 3, 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," he is a governor in the bluest of the blue states and he is not backing down on his assault on high taxes, out of control spending, teacher pay and union pensions. New Jersey Governor Chris Christie is here.

The Supreme Court strikes another blow for the Second Amendment. But the gun rights battle is far from over.

And Democrats use the Kagan hearings to attack John Roberts and other conservatives on the court.

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

Well, some said it couldn't be done, but New Jersey Governor Chris Christie signed into law this week the state's smallest budget in five years, starring down a Democratic legislature to enact major cuts in spending to schools, municipalities and mass transit. The plan closes an $11 billion deficit without raising taxes.

I spoke with Governor Christie earlier this week, and asked him how he did it.

(BEGIN VIDEOTAPE)

GOVERNOR CHRIS CHRISTIE, R-N.J.: We did it because we stuck by our principles. We said, in the beginning, we were going to reduce spending and we reduced spending nine percent from last year's budget. We said we would spread the pain evenly. Every department in state government got a cut. Everyone was reduced. We said we would not raise taxes on the people in the state of New Jersey and we vetoed the tax increase that the Democrats tried to push forward. We stayed to our core principles. We stood firmly on them. We negotiated in areas where we had to negotiate but very little, and 99.8 percent of the budget that I presented on March 16th was passed on June 28th.

GIGOT: And what is your response to those people who say part of that $10 billion deficit you closed, you kicked the can on a $3 billion pension contribution, down the road. That is a not a long-term saving.

CHRISTIE: What I would say to them is I have already worked toward pension reform, which we passed a good amount of pension reform in March. But until we get all of it, I will not throw good money after bad into the system. I'm certainly not going to raise taxes in order to do it. So we have to bend the benefit curve and get pensions to be more realistic and then I am happy for the state to make their contribution.

GIGOT: So you will make that contribution but only if they reform of the pension system, which I assume means benefits.

CHRISTIE: Sure, it means benefits, absolutely. We have to change the way the system operates. Maybe we have to go to a tiered system. There is a bunch of ways to reform this to make our deficit in the pension system, which right now is about $50 billion. We need to do something. We're never going to have enough money to pay that $50 billion debt. We have to bend the benefit curve. And that's what I'll be working on this fall.

GIGOT: The next big fight coming up very soon here is over the property tax cap that you proposed, 2.5 percent annual increase cap. You are calling the legislature into special session and they're saying, no way. How do you get them to change their minds? It's controlled by the other party.

CHRISTIE: It is. It will be the same difficulties we have on the budget. But I think when you have the right argument, you can win. The argument is, for 30 years New Jersey has had awful property tax problems. We have the highest property taxes in the nation. People are losing their homes and fleeing the state because of property taxes. We need it to fix it and we need that fix to be a permanent fix, a permanent constitutional cap —

GIGOT: You're putting this into the constitution? This would just not be a law. This would be a constitutional change?

CHRISTIE: That's exactly what my proposal is. Change the constitution and cap it and only let there be two exceptions for that 2.5 percent cap, debt service because you want municipalities and counties to pay the debt back to the people that lent the money to them.

GIGOT: Right.

CHRISTIE: And secondly, voter override. If the voters want to spend more money on property taxes because they favor a particular project or program that costs more, let them decide. But the professional politician deciding has been a failure for 30 years.

GIGOT: But here's the Democrats say. They say Governor Corzine had a cap, it was at four percent. And the Democrats now are saying we're doing better than that. We have a proposal for 2.9. Two point nine percent, 2.5 percent, what is the difference, Governor? Why won't you play ball with our cap? Why go all the way down to 2.5 percent?

CHRISTIE: The problem with their cap at 2.9 is the same problem with Corzine's at four percent. That's all the exception. They had 10 different exceptions to cap, exceptions for health care costs, fuel costs, pension payments. And in fact the best one of it all, the tenth exception is, any money that is spent for the general health, safety or welfare of the town.

GIGOT: Which is just about anything in government.

CHRISTIE: That's exactly right. So the exceptions become the rule. That is why a hard cap is important. For any sports fans out there, it is the difference like a hard cap in the NFL and soft cap in the other leagues, where you can spend over the cap with all the different other rules. A cap should be a cap. And the only way to keep property taxes going down in New Jersey, get them moving in that direction, is to cap spending.

GIGOT: One of the things you did this year in the budget to save money was to reduce the state contribution to local school districts. I've heard from Republicans, they would say, look, that is just setting us up for property tax increases in these local school districts. You may not increase taxes at the state level, but at the local level.

CHRISTIE: That is if you believe we should keep the labor costs we have at the same level. Teacher's unions have been getting four and five percent increases, paying nothing towards their health benefits. That is the major driver of the costs, are those kinds of things that also apply to police and fire and other municipal workers. That is why the 2.5 percent cap, all in, is very important in helping to stem the problem.

GIGOT: This is structural reform that is going to prevent that kind of future tax increase at the local and district level?

CHRISTIE: Yes.

GIGOT: All right. Democrats run the legislature, they don't have to do what you want. How are you going to make them put in this cap, which obviously their interest groups don't want?

CHRISTIE: They know the state is going broke. And they're going to wonder who gets blamed for it when that happens. And they will want to avoid the blame by being responsible and fixing it. I absolutely believe that this is what we have to do, and the public will demand it. We'll see how it works out. But in the end, I think I have been successful so far being straightforward and telling it like it is and being direct. And I'm going to be very direct with the legislature about the fact that those who don't and who aren't willing to act will be held responsible.

GIGOT: One of the things you have in New Jersey is one of the strongest governorship in terms of the power you have. You can call them day after day after day in special sessions, and they have to show up?

CHRISTIE: Yes.

GIGOT: You plan to do that?

CHRISTIE: I plan to work as long and as hard as we have to to finally control property taxes New Jersey. I'm not doing this just to do it. I'm doing it because I want a result. The day we get results, everybody can go home.

(END VIDEOTAPE)

GIGOT: When we come back, taking on the teacher's union. Governor Christie tackles what many see as the third rail of New Jersey politics, and lives to tell about it.

(COMMERCIAL BREAK)

GIGOT: Never mind the Democrats run the state legislature, the biggest fight Governor Christie has picked since taking office in January is with the powerful state teachers union. And the union, the New Jersey Education Association, is fighting back, blanketing the garden state air waves with ads like this one.

(BEGIN VIDEO CLIP)

AD NARRATOR: New Jersey teachers, firefighters and police; they educate our children and keep us all safe. But Chris Christie's latest plan to limit local spending will make it harder for them to do their jobs. Christie's new proposal could cut funds for firefighters. It will make class sizes larger and cut programs for students. And it could force communities to lay off police, firefighters and even more teachers.

Call Governor Christie, tell him to stop hurting the people our families rely on the most.

(END VIDEO CLIP)

(BEGIN VIDEOTAPE)

GIGOT: What is your reaction to that ad? They say you are going to cut firefighters, cut police, lay off teachers. What's —

CHRISTIE: Absolutely not true. Maybe they should get to the real world, where people — 55 percent of the Americans during this recession have either lost their job or have their pay cut. If these folks would take a pay freeze, we would be able to avoid all of those things that they talk about there. What I think we need to do is have everybody share in the sacrifice. The private sector is sharing in this sacrifice. The public sector needs to share in this sacrifice also. So this is just normal scare tactics that they play. But you know what? The people in New Jersey are getting smart to this. They realize they're the ones being asked to pick up the tab.

GIGOT: How much did they spend on television on these ads and related ads to take your approval rating down?

CHRISTIE: Since March 16th, they spent over $7 million.

GIGOT: Over $7 million. And that's teacher dues money. That's union dues money, mandatory dues money.

CHRISTIE: Absolutely. In fact, the CWA, the state's workers union, has asked for an additional 1.5 assessment on the dues just to run ads against me.

GIGOT: Really, a special Christie assessment.

CHRISTIE: Yes. A Christie assessment.

GIGOT: The conventional wisdom is, when you are running ads like that, and they're unanswered, except for you in the bully pulpit phase, but you don't run ads to respond to those on an hour by hour basis like you do during a campaign.

CHRISTIE: We spent or people who are supporting us have spent a total of $200,000 compared to their $7 million.

GIGOT: Wow. But the conventional wisdom is, when you run ads like that, you take down a governor's or president's approval rating. That's what they did in California to destroy Arnold Schwarzenegger's reform attempts. They are trying it now. They've tried it in New York State. They tried it in other stores, conventional wisdom that will destroy you. It doesn't seem to be working so far in New Jersey. Why?

CHRISTIE :Because I think the public gets it and knows we are in a financial crises and we can't afford the cost of the big government in every level in New Jersey anymore. And they want somebody to stand up and try to change it. That's what I'm trying to do. And I can't tell you what the end of the story will be and whether we're going to be able to change —

GIGOT: Politically.

CHRISTIE: Right.

GIGOT: They could beat you is what you're saying?

CHRISTIE: Sure. I can't say we'll be able to change conventional wisdom for sure but we have done OK so far.

GIGOT: But the other bit of conventional wisdom is you can't take on the teacher's union. They're sacrosanct. You will get accused of laying off teachers. You'll be accused of hurting kids. And they have used that, as we saw in that ad. They're trying to use that argument. Tell me a little bit about your relationship with the teachers unions. Is the public changing in its perception of how education works?

CHRISTIE: People love their teachers. I loved my teacher and I'm a product of the public schools in New Jersey. Parents love their teachers, but they don't love the teacher's union. That is because the union has been unwilling to be part of the shared sacrifice.

GIGOT: Are they making that distinction between the two, the voters?

CHRISTIE: Yes. They are. I've seen polling data that backs that up. You see there is public polling that shows for the first time that the opinion of the public of the teachers union is actually upside down. That there are more people that disapprove of the teacher's union now in New Jersey than approve of it.

GIGOT: You asked teachers, as part of this budget, one of your first offers, take a pay freeze, which was going to be, what, about five or six percent?

CHRISTIE: Yes. We would have saved about $750 million.

GIGOT: They refused.

CHRISTIE: Absolutely.

GIGOT: Did that help or hurt your argument that, you know what, we're going to have to make some cuts for education? Did they seem to be simply not cooperating?

CHRISTIE: I think that's what people saw. People say they had an opportunity to avoid layoffs, avoid program cuts. If they would just freeze their pay for a year. Contrast that with the fact that, as I said before, 55 percent of the people in America have either lost their job or had their pay cut during this recession. So people didn't have a lot of sympathy for the fact that they were not going to share in the sacrifice. New Jersey, for the first time, we averaged having our school budgets approved by the voters —

GIGOT: Right.

CHRISTIE: Average, over the last 10 years, 74 percent approval. This past year, 59 were disapproved.

GIGOT: The other issue I want to ask you about is the millionaire's tax. The Democrats in the legislature said, rather than go through these spending cuts, what we're going to do is raise taxes on millionaires. It's a time-honored tactic. It's been done in New Jersey. You had a similar tax before that was passed under the previous governor and then was phased out. They wanted to reinstate it. You vetoed it. Can't the rich afford to pay those taxes? What did you veto that?

CHRISTIE: That's really not the question, whether someone can afford to pay a tax. It is about what kind of atmosphere you set up in the state. We've raised taxes 115 times in eight years and we still have an $11 billion deficit. So if raising taxes fixed the problem, we should be in the black with all the times we've raised taxes. It doesn't. We drive businesses and people from the state. Boston College did a study that between 2004 and 2008, $70 billion in wealth has left the state of New Jersey.

GIGOT: Where are they going?

CHRISTIE: Florida and Pennsylvania and Connecticut.

GIGOT: Florida has no income tax.

CHRISTIE: No income tax at all. And all of these states have a lower tax structure on property taxes, income taxes, sales tax than New Jersey does.

GIGOT: What is the political blow back for you and Republicans from that veto of the millionaires' tax?

CHRISTIE: None.

GIGOT: None?

CHRISTIE: No.

GIGOT: You haven't seen a drop in the polls or any backlash at all?

CHRISTIE: No.

GIGOT: What is your reaction — what reaction do you get from the Democrats in the legislature when you told them you would veto it because it is bad for the state's economy, and you know it, people are leaving the state? Do they just say, so what, or do they say, you're right, or we've got to go through the motions for this because our constituents or interest groups like this? What do they tell you about why would they push something like that if they know you're going to veto it?

CHRISTIE: Because I think they thought they could get a political advantage out of it. And I think also they really wanted to fund government to an even greater extent.

GIGOT: No cuts?

CHRISTIE: No. They wanted — and, listen, there still had to be cuts, but this would have created 100 of millions of dollars more of tax money. But in the end, what it was doing was killing our economy. I think, listen, in Trenton, they're so addicted to spending that they're not used to it. We're going to try to get them off it.

GIGOT: All right, Governor Christie, thanks so much. We'll be watching the showdown over the property tax cap. Thanks for being here.

CHRISTIE: Thanks for having me, Paul, it has been great.

(END VIDEOTAPE)

GIGOT: When we come back, the Supreme Court hands gun-rights advocates another big win this week, extending the Second Amendment to the states. But if you think the battle is over, think again.

Plus, Democrats used the Kagan hearings to attack the John Roberts court. But is that court really all that conservative?

(COMMERCIAL BREAK)

GIGOT: The Supreme Court ended its term this week with a proverbial bang, ruling that handgun bans, like the one in the city of Chicago, are unconstitutional. Writing for the majority, Justice Sam Alito said the right to bear arms applies equally to the federal government and the states. The 5-4 decision was a logical extension of the court's 2008 ruling in District of Columbia v. Heller, which says for the first time that the Second Amendment was an individual right, like the rest of the Bill of Rights.

Later in the week, during confirmation hearings for nominee Elena Kagan, Democrats used that ruling and several others from the term to level a broad attack against the John Roberts' court.

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER, D-N.Y.: The rightward shift of the court under Chief Justice Roberts is palpable. In decision after decision, special interests are winning out over ordinary citizens. In decision after decision, this court bends the law to pursue an ideology.

SEN. AL FRANKEN, D-MINN.: But there is such a thing as judicial activism. There is such a thing as legislating from the bench. And it is practiced repeatedly by the Roberts' court. And it has cut in only one direction, in favor of powerful corporate interests and against the rights of individual Americans.

(END VIDEO CLIP)

GIGOT: Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger; opinionjournal.com editor James Taranto; and senior editorial page writer, Colin Levy.

And, Colin, so this week, a big victory for the National Rifle Association on the Second Amendment, yet it's the same week the NRA decided it would oppose Elena Kagan's nomination to the court. What is the NRA worried about? Haven't they won?

COLIN LEVY, SR. EDITORIAL PAGE EDITOR: Well, they have, but only for the moment as it goes. I think what is happening here is the NRA is concerned that Elena Kagan will continue hold the same position on guns she held throughout her career. We saw, when she was in the Clinton White House, she wrote memos that encouraged aggressive gun control measures by the administration. And when she was a clerk for Chief Justice Marshal, she also wrote a memo in which she said was not sympathetic to an argument that was very similar to the one made in D.C. v. Heller. Now what we saw at the court this week too, McDonald was certainly a win but it was a 5-4 decision. And the liberal minority, the dissent that was written went pretty far in suggesting that this fight may not be over after all. That some of the logic in Heller was also up for grabs.

GIGOT: I think they totally rejected the argument in Heller. Justice Breyer, in his dissent, said he saw nothing in the Constitution that allows you to conclude that the right to bear arms is an individual right, as opposed to accruing to a militia.

JAMES TARANTO, EDITOR, OPINIONJOURNAL.COM: Yes. And let's not forget that Justice Sotomayor joined Justice Breyer's dissent last year, after saying she understood how important the right of bearing arms is.

GIGOT: Right. But what's the logic for the liberals here because they now say, we favor precedent, and we believe in precedent. We don't want to overturn it. They're accusing the Roberts, the conservatives of being too aggressive in overturning precedent. Heller is two years ago?

TARANTO: Yes. They don't really believe in precedent when they disagree with the precedent. When Senator Franken, for example talks about judicial activism —

GIGOT: I can't get used to that, Senator Franken.

TARANTO: I know. He should have kept his day job or stayed a comedian.

GIGOT: Acting job.

TARANTO: When they talk about judicial activism, it tells you two things. One, they've lost the argument about judicial activism because judicial activism was a right-wing bugaboo for many years. So they're trying to redefine it. Judicial activism is not overturning precedent or striking down laws. There are times when it is appropriate for a judge to do that. Judicial activism consists of putting one's own social or political views above the law. What the dissenters want to do here is actually to say, we don't like guns and therefore we'll pretend the Second Amendment doesn't say what it says. That's judicial activism.

GIGOT: All right.

Dan, the liberals could have joined the majority opinion and, if they had, they probably could have influenced it in a way that made it — describe the contours of what kind of regulations of guns is permissible at the state and local level. Instead they abandoned the field, suggesting to me that they need one more vote and they will go the other way and try to overturn both Heller and McDonald.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I don't doubt they will try that at all, Paul.

GIGOT: Try to do it.

HENNINGER: They'll try to do it. It is interesting. There are liberal legal theorists now that are suggesting that they should throw in the towel on the Second Amendment because the language of it is pretty clear. It is not like the First Amendment which has three or four things going on there.

GIGOT: Right.

HENNINGER: This is explicit. And the liberal dissent was denying the reality of the wording. It is a hard thingfor them to do. Why do they do it? I think is essentially, for what James is suggesting, it is a point of deep ideology for the liberal wing of the court. It's like liberals on national security and police powers and coddling criminals. They don't believe in guns and what guns represent and they will oppose it with their dying breath.

GIGOT: Colin, let's turn to the Democratic attack on the Roberts' court. What is the thinking here? It was really broad based.

LEVY: Yes. The thinking here is to demonize the Roberts' court and make this into a radical situation. But just to develop on what Dan was saying, you know, even in the decision that Sam Alito wrote in the McDonald case, he left open pretty explicitly room for gun control measures by the state. So the idea that the court is so activist and so conservative is a bit of a fantasy by the left.

GIGOT: Are they trying to intimidate the Supreme Court, Dan? Is that what they're trying to do, saying, don't overturn Obamacare or there will be a big political price to pay?

HENNINGER: I think a lot of this has to do with Citizens United, the campaign finance decision.

GIGOT: Right.

HENNINGER: Which, you know — the biggest event of the court's term was President Obama attacking the court in public, in person, at the State of the Union speech.

GIGOT: As a captive audience in front of them.

HENNINGER: As a captive audience. I think this is basically about politicians are defending their own self interests. Senator Franken mentioned corporations. They are terrified the corporations will now get involved in elections and spend money in a way that will cause them electoral losses. And they are pushing back hard against that.

Having said that, I think Chief Justice Roberts was appalled about what the president did and he's trying to protect the institution of the court.

GIGOT: So they will not be intimidated?

HENNINGER: I don't think so.

GIGOT: All right, Dan, thanks.

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

(COMMERCIAL BREAK)

GIGOT: Time for "Hits and Misses" of the week.

Colin, first to you.

LEVY: Paul, this is a hit to California immigration judge, Rico Bartolomei who this week granted asylum to a man named Masab Hassan Yousef. Now, Mr. Yousef is one of the sons of one of Hamas' founders but he became a spy for Israel and wrote a book about it. What happened was, the Department of the Homeland Security had used the passages that he had written in this book about his experience fighting terrorism as evidence for his material support for terrorism. This week, the Department of Homeland Security backed off it and said he is an asset and not a liability.

GIGOT: And thanks to the editorial you wrote, Colin.

James?

TARANTO: James, the New York legislature was considering a big tax on hedge fund executives who live in Connecticut but work in New York State. Governor Jodi Rell of Connecticut responded by inviting them to move their offices to Connecticut where the taxes are lower. As a result, Governor David Paterson of New York says he is against the tax. So I have a hit for the governor of Connecticut for helping to fight higher taxes here in New York.

GIGOT: All right.

Dan?

HENNINGER: Paul, I have a profound miss to the World Cup Soccer Club from England and France, which not only lost, but seemed to have lost in a way that shattered their nation's self esteem. I saw an English commentator say, "Maybe we are just no good anymore." The French assembly held hearings. Hey, guys, get over this. In 2004, the U.S. Men's Olympic team lost to Argentina by eight points. We eventually got over it. I don't think France and England may get over it and there must be a lesson in there somewhere.

GIGOT: James, it never ceases to amaze me, the capacity of New York politician to commit suicide, economic suicide.

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

Thanks to my panel and all of you for watching.

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

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