This is a rush transcript from "The Journal Editorial Report," September 11, 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," President Obama hits the campaign trail, rolling out a new tax plan. But is it enough to change the debate heading into November?

Plus, forget the last two years. Endangered Democrats are distancing themselves from the president, from Speaker Pelosi and even the policies. Will the strategy work?

And nine years after the September 11 attacks, has America overreacted to the terror threat? Some seem to think so.

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

Well, 20 months and more than a trillion dollars in so-called stimulus later, has President Obama has discovered the virtue of tax cuts. This week, the president proposed a $180 billion plan that includes a permanent research and development tax credit and a tax write-off for businesses that invest in plants and equipment before the end of 2011. Do his proposals go far enough and will they change the debate going into the midterms?

Joining the panel this week, Wall Street Journal deputy editor and columnist, Dan Henninger; Washington columnist, Kim Strassel; and senior economics writer, Steve Moore.

So, Steve, you've been telling me all week that you like this presidential proposal. Why is it different? How is it different than what he proposed before and how why it better?

STEVE MOORE, SENIOR ECONOMICS WRITER: The interesting thing that I found this week, I do like some of those ideas, for example the expensing that allows businesses to write off the capital purchases they make. I think it's a good idea. What's interesting about it, Paul, is the business community, it landed with a thud. They don't want the idea and they think that the cost of the plan with all of the additional corporate tax increases that will take place makes it not worth it.

GIGOT: Steve, I want to ask you, I want to get to the business point. But I want to ask you, why you think this is a god proposal first. Does it represent a philosophical shift for the president?

MOORE: I like it because I think if you actually allow the businesses to write off capitol purchases, like equipment, plants and computers, you're going to get a burst on the economy. The point is, it's only a one- year tax cut. So what's going to happen is purchases that would have been made in 2012 and 2013 are going to be fast forwarded to 2011 and then the economy simply will tank in 2012.

GIGOT: All right.

I think this is a philosophical shift by the president, Dan of some significance. I say that, why, because before it was always the Keynesian spending to drive the consumer spending and demand. This is the first time he has come out and said, we need to do something for business inceptives, for the supply-side of the economy. That's a huge switch. And it's a tacit admission, if you ask me, that his previous policies haven't worked. Now, we can get to the politics and why business may not trust it, but isn't that a significant change?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: It's a significant change on its base, Paul, but I don't think that he personally believes in any of it. It's something that politics has driven him too. This whole pressure, debate the last month or so has been, are you going to extend the Bush tax breaks somehow? I think that the philosophical things that the president has said, he doesn't want to lower individual tax rates or cooperate tax rates in any way that would put money in the hands of the wealthy or the rich. He will not do that. So this was Plan B.

GIGOT: So this is political jujitsu —

HENNINGER: Absolutely, it's political jujitsu.

GIGOT: — to try to stop the Democrats from stampeding to overrule him on the Bush tax rates?

HENNINGER: And I think that's why, as Steve suggested, it lands with a thud in the business community, because they recognize the political jujitsu.

GIGOT: Kim, is it going to stop that impact politically? Is it going to stop the Democrats, some of them who have been very vocal about it, saying we need to keep the 2003 tax rates, is this Obama proposal going to stop that?

KIM STRASSEL, WASHINGTON COLUMNIST: No, I don't think so, and here's why. The president and those who support his latest proposals have two problems. And remember, these proposals — there are more than tax cuts. He also put forward $50 billion in new stimulus spending for infrastructure projects, he calls them. Here's the problem. One, right now, stimulus is a dirty word. People are more concerned about more spending and the deficit is huge. You have a lot of Democrats who are not eager to pass a plan like this that includes more spending.

And the second problem is, again, they are feeling pressure to extend the Bush tax cuts. You've had four Senate Democrats saying, we should do that across the board, at least on a temporary basis. And you had even more House Democrats do that. And with the business community out there suggesting that this is a poor substitute for that broader tax policy change, there's a lot of pressure on Democrats not to just sign off on this.

GIGOT: Steve, you think the business community would rather dispense and do away with this new promotional and just extend the Bush tax rates? They figure that would be better for growth?

MOORE: There's no question. They're saying keep the tax rates where they are.

The other problem that Barack Obama had is a trust issue with big business and small business. They don't feel, after the health care bill and the stimulus debt spending and the environmental regulations, all of these things, they think that Obama has an anti-business mentality. And they don't trust him on these issues.

For example, I was saying, yes, he's going to give tax cuts, but you know how he's going to pay for that, Paul? With a corporate tax increase.

(LAUGHTER)

GIGOT: Some say, Dan, that this puts Republicans in a box, some journalists in particular, because if they don't support it, they will be opposing — these new proposals — they'll be opposing ideas that they have supported in the past.

HENNINGER: I think that's theoretically true, but I don't think they're as much of a box as people suggest. The time frame, the legislative calendar for getting this done is very tight. It's tax legislation, which is not easy to put through. The Democrats are divided, as Kim suggested. Some would like to extend the current tax rates. I just think getting it done legislatively is going to be difficult. And someone like Mitch McConnell in the Senate is not going to have too much trouble pushing this off to the side and keeping it from passing.

I think that the Democrats are the ones with the big problem here. With the tax increases looming —

GIGOT: Right.

HENNINGER: — if they have to extend them for one year, it looks bad. Two years, it becomes a presidential campaign issue, which Obama doesn't want.

GIGOT: I think it's a big, potentially philosophical moment, Dan. It's a shift intellectually. We have been dominated in our economic debate for three years by this Keynesian spending model. Obama is basically admitting it hasn't worked and now we have the chance to make the turn. I think we'll make that turn after November.

Still ahead, the Democratic dash. With the election less than two months away, vulnerable incumbents are running ads fast and as far from the president, from Speaker Pelosi and even from their own voting records. Will it work?

(COMMERCIAL BREAK)

GIGOT: As campaign season kicks into high gear, a new political phenomenon is emerging. Democrats denying that they're Democrats. With Election Day less than two months away, embattled incumbents are suddenly expressing their opposition to their party's leadership in Washington and distancing themselves from policies in the last two years.

Take a look at this ad from Congressman Joe Donnelly, a second-term Democrat from Indiana, in a tight re-election fight.

(BEGIN VIDEO CLIP)

AD NARRATOR: They're at it again, smearing Joe Donnelly. The facts: Joe Donnelly is Indiana's most independent congressman. Joe opposed President Bush's attempts to privatize Social Security and voted against Nancy Pelosi's energy tax on Hoosier families. But Jackie Walorski, she blindly follows the party line, sending our jobs overseas and risking our Social Security in the stock market. There is a difference. Joe Donnelly is the independent voice who protects Hoosier families.

REP. JOE DONNELLY, D-IND.: I'm Joe Donnelly and I approve this ad.

(END VIDEO CLIP)

GIGOT: So, Kim, the subtext of the ad should be Nancy Pelosi, I've never met the woman, who is that?

(LAUGHTER)

STRASSEL: Don't know who she is.

GIGOT: Won't be seen in the same room with her. How many Democrats are running on this kind of theme?

STRASSEL: If you're in trouble right now in the polls, you're basically running on this theme.

(LAUGHTER)

This is what Democrats have decided they will run on this fall, which is opposition to their party's agenda and also the president personally, and Nancy Pelosi, and Majority Leader Harry Reid. And you are seeing it, by the way, not just on things like healthcare, but on stimulus, also on the —

GIGOT: Cap-and-trade.

STRASSEL: — cap-and-trade vote that happened, on the auto bailouts the administration did, on cultural questions. It's everywhere.

GIGOT: Kim, is there any single issue on which they're actually running on the record?

STRASSEL: You know, you do see a few guys out there saying, we passed a bill to rein in Wall Street.

(LAUGHTER)

But even then — even this has become a little bit dicey because with this reputation that the administration is getting anti-business, that's not such a clear-cut victory anymore. So some Democrats are being a little bit weary about that.

GIGOT: Dan, is this going to work?

HENNINGER: I don't think so. I love the idea of forgetting about the stimulus and Obamacare. This is about forgetting about the $2 trillion gorilla in the room —

(LAUGHTER)

— that the American people were reading about for an entire year.

GIGOT: Right.

HENNINGER: So they have to somehow pivot. I think we saw where they're going this week in the speeches by Governor Ed Rendell of Pennsylvania and Tim Kaine, head of the Democratic National Committee. Rendell gave a speech in which he said the Republicans are crazy. They're full of people who are birthers, Obama wasn't born here, or they're Tea Partiers.

More interestingly, Tim Kaine said, "The Republicans are the party that might threaten Social Security, they might threaten Medicare. And when times are tough, the American people always turn to the Democrats." And I think that's what Barack Obama was getting at when he attacked the Republicans as disliking the middle class this week. That, I suspect, is what the strategy is.

GIGOT: But, Steve, this strategy did work once before. It worked in a special election earlier this year in southwestern Pennsylvania where Mark Critz, the Democrat, beat the Republican. I think they look at that and said, we can replicate that and we can stave off, save maybe 10, 15 seats that we otherwise might lose. Why are they wrong about that?

MOORE: Well, it might work for some races. But what's remarkable to me is, by the way, it's not just who is Nancy Pelosi, but it's who is Barack Obama? A lot of them are explicitly running against the Obama agenda.

The thing I find most interesting, Paul, is how they're running away from Obamacare. Remember, this time a year ago, what Barack Obama and the Democrats political strategists were saying, once the American people see this bill, they were going to love it. They're going to see this as a big asset.

GIGOT: Right.

MOORE: And that hasn't happened at all, because, by the way, partly because of what happened this week. Insurance companies are raising their premiums. Exactly the opposite of what the bill promised.

MOORE: All right.

Republicans are responding to this type of tragedy now. Let's see the ad they're running against Joe Donnelly in Indiana.

(BEGIN VIDEO CLIP)

AD NARRATOR: Joe Donnelly claims he's independent. But he's voted with Nancy Pelosi 88 percent of the time: for the Obama-Pelosi health care plan, the Wall Street bailout, even the $800 billion stimulus that failed. In fact, Joe has taken $130,000 from Democratic leaders, over $30,000 from Nancy Pelosi alone. And now, Joe Donnelly wants us to believe that he's independent?

The National Republican Congressional Committee is responsible for this advertising.

(END VIDEO CLIP)

GIGOT: Kim, that reminds me of 2008, where Barack Obama kept linking John McCain to George W. Bush. This time, turnabout is fair play. Is — who gets the better of this exchange?

STRASSEL: Yes, they didn't just pull this out of nowhere. There was a road map here.

(LAUGHTER)

This is what the problem is for Democrats, and the way this might not works. You go back to that special election, you have to remember, the Democrat who was running there, he didn't have a record. One of the problems for the Democrats here, for all of the guys who maybe voted against stimulus or maybe voted against the health care bill, they all got a bad vote somewhere, and they're going to linked to it. And right now, this is a referendum on the country. So even with the arguments that they're making, it's going to be hard to disassociate themselves from an unpopular president and this agenda.

GIGOT: Another irony here is a lot of the Democrats who are vulnerable this year and are running like this, were hand-picked by Rahm Emanuel when he was in the Congress, to run in 2006 as moderates in the districts with moderate voting records. They might lose this year, now that Rahm is in the White House because of the policies of Rahm Emanuel's president.

HENNINGER: Yes, well, the guy who has to be the happiest Democrat in the America is Joe Lieberman, who has the little slash, independent after his name.

(LAUGHTER)

And he's the guy they drove over the cliff, and now they're all running in his direction.

(LAUGHTER)

GIGOT: All right, Dan, thanks. Last word.

When we come back, as Americans stop to remember those who died nine years ago today, some say that the U.S. overreacted to the terror threat. We'll examine that claim next.

(COMMERCIAL BREAK)

GIGOT: Today, of course, marks the nine-year anniversary of the September 11th terror attacks. In a column this week that reflects the views of many in the foreign policy establishment, Newsweek's Fareed Zakaria said that America overreacted to the events of that day and overestimated the strength of the enemy.

Zakaria writes, quote, "Nine years after 9/11, can anyone doubt that Al Qaeda is simply not that deadly a threat? Since that gruesome day in 2001, Usama bin Laden's terror network has been unable to launch a single attack on high-value targets in the United States and Europe. September 11th was a shock to the American psyche and the American system. As a result, we overreacted," end quote.

Wall Street Journal foreign affairs columnist, Bret Stephens; and editorial board member, Matt Kaminski, join us to talk about this.

Bret, overreaction?

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: That's probably not what people were saying right after the — nearly successful Christmas Day bombing in Detroit last year. It's not what people were saying when a car bombing nearly — or went off in Times Square, or after Madrid, or the bombings in London. So, partly, I think this kind of commentary is a reaction to a certain lull, but that lull is a reflection of the success that we have had in killing Al Qaeda leaders, in reducing some of their capabilities.

And I think that the threat remains. It's shifting. It's shifting in terms of who is trying to attack us. It's shifting geographically, moving to Pakistan to Yemen, but it remains very present. To treat as somehow — to suggest that we overreacted, seems to me, is to miss the point of the last nine years.

GIGOT: So, Matt, compliment to the Bush policies? And to be fair, President Obama's policies, because since he has really followed Bush in many respects?

MATT KAMINSKI, EDITORIAL BOARD MEMBER: It's a tribute —

(LAUGHTER)

— really, of course, to what has happened in the last nine years. We could not have anyone say that we've overreacted. If any of these events have happened, but because not a single American has been killed on American soil by terrorists since 9/11, and because the Bush policies worked, we are able to have a confident and open debate about this right now. I think the real danger is — if you want to see overreaction, see what happens if a nuclear bomb goes off in an American city or if a plane goes down?

GIGOT: That's ultimately the threat, even if it is not imminent, which we don't think it is, but if that ever happened, that's the kind of thing that would have devastating impact for civil liberties. The American public would recoil in horror and probably demand real potentially — American changing policy.

STEPHENS: I think it's absolutely frightening to contemplate what would happen if there were another really major terrorist attack on this country, a nuclear explosion, you could see internment camps for Muslims in America, the way you had for the Japanese. And it's one reason why you have to continue to pursue aggressive counterterrorism policies abroad, to prevent that kind of scenario and also to prevent that kind of reaction.

Israelis have this metaphor when dealing with terrorists. They say, you have to mow the lawn. Which means that the grass is always going to come up and you have to make sure you — you have to keep it down. and that's what the United States has been doing for the past nine years. It has been doing it in the northwest frontier province and it's now attempting to do it in Yemen, in Iraq, elsewhere. We now have homegrown threats, and if we move to a posture of complacency, we're going to find the weeds coming up. We're going to find ourselves —

GIGOT: I guess the response to that would be you're positing a false dilemma, one the hand, complacency and, on the other hand, overreaction. Is there a more moderate middle that we could pursue here?

STEPHENS: It would be difficult to find it. Where exactly is the moderate middle? The fact is, as Matt pointed out, for nine years, not a single American has died on American soil because we have been pursuing aggressive counterterrorism.

(CROSSTALK)

STEPHENS: How much do you want to reel that in really and see where the dividing line is?

GIGOT: Matt, one thing that I think maybe we have overreacted is on the bureaucratic reshuffling and expansion. The intelligence reform of 2005, all it did was put another layer of bureaucracy over the 15 intelligence, or so, agencies. The Department of Homeland Security is not a model of streamlined activity.

(LAUGHTER)

KAMINSKI: No, certainly not. That has been — that is a very fair critique and it's a critique that certainly conservatives should make, that this has been — led to this growth of the uber bureaucracy. We're building some gigantic complex outside of Washington to house the Department of Homeland Security.

But the real logical fallacy that's made here is that when people saying Al Qaeda is now weak, therefore, we overreacted, or perhaps Al Qaeda is now weak because of the way we reacted.

GIGOT: And that's why we have to stay on offense, which intriguingly, once you get into office, the way the Obama team has, they become as concerned about these terror threat as the previous guys, maybe even as much as Cheney, do you think?

(LAUGHTER)

Well, maybe not that much.

All right, 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.

Kim, first to you.

STRASSEL: In the early 1990s, the spotted owl became a symbol of environmentalism gone wild. Bill Clinton actually used the bird to shut down logging in the northwest, even though we've since come to find, it's not the logging that hurts the bird, as much as its rival, a nastier, meaner owl, called the barn owl (ph).

(LAUGHTER)

The Bush administration tried to fix some of this a couple of years ago with a new recovery plan that would help both the owls and the loggers. So my miss goes to the Obama administration, which has, of course, thrown out that Bush plan and now is reverting to the same old green, typical, anti-logging stance. It's not helping the birds as much as just locking people out of forests.

GIGOT: All right.

Bret.

STEPHENS: Well, 59 years too late, but it's still sweet. Fidel Castro tells The Atlantic correspondent, Jeffrey Goldberg, that the Cuban model, the communist economic model, doesn't work in Cuba, much less anywhere else. It's a pity that the Cuban people have had to endure so much misery, so much dictatorship, so much deprivation. But late in life, at least it's an admission of what everyone else seems to know.

GIGOT: All right.

Matt?

KAMINSKI: For the first time at a 9/11 anniversary this year, we can — have good news and some progress at Ground Zero. All the disputes have been resolved between the developers, the Port Authority and the city. You can see the first tower is now one-third of the way up. On floor 36, they're adding a floor, more or less, every week. The memorial center will be open by next year's 10-year anniversary, where you're going to have these — the biggest man-made waterfalls. So it's no longer — it took too long, but it's no longer a big hole in the ground.

GIGOT: Finally. That's great.

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 Paul Gigot. We hope to see you all right here next week.

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