Obama's fuzzy math on the 'fiscal cliff'

Does the president really want a tax compromise with Republicans?


This is a rush transcript from "Journal Editorial Report," November 17, 2012. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," President Obama's fuzzy math. He says closing loophole isn't enough and that the tax rates must go up for top earners. So does he really want to avoid the coming tax cliff?

Plus, the Petraeus scandal further muddies the Benghazi probe. Was the former CIA director's account of events in any way influenced by the investigation into his affair.

And Saudi America? The U.S. is on track to become the world's largest oil producer but will the Obama administration let it happen or turn an oil boom into a bust?

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

Headed into Friday's fiscal cliff talks with congressional leaders, President Obama gave us a hit Wednesday of his negotiation strategy, repeating his intention to immediately raise tax rates on top earners.


PRESIDENT BARACK OBAMA: When it comes to the top two percent, what I'm not going to do is to extend further a tax cut for folks who don't need it, which would cost close to a trillion dollars. And it's very difficult to see how you make up that trillion dollars, if we're serious about deficit reduction, just by closing loopholes and deductions. The math tends not to work.


GIGOT: But does the president's math add up? Let's ask Wall Street Journal columnist, Bill McGurn; senior economics writer, Steve Moore; and Washington columnist, Kim Strassel.

So, Kim, the president won reelection. Was this the hand of magnanimity reaching out to the Republicans --


-- and saying, look, I want a deal here and let's all sit down and negotiate together?

KIM STRASSEL, WASHINGTON COLUMNIST: It's crazy. It's what the president says all the time. If you listen to the press conference, he seems to say the biggest wish list for his liberal partisans that has become gospel is letting these tax rates expire. So, while the Republicans have moved, they are offering revenue -- this is a change from their position -- while the frame work is potentially there for a deal, the president is saying no compromise, no compromise.

GIGOT: What's his strategy, Bill, here? What is he thinking? Obviously, if we don't get a deal, we do go off the tax cliff and with the consequential danger to the economy.

BILL MCGURN, COLUMNIST: Right. Well, you say -- Kim is absolutely right and you're right, the math doesn't add up. The politics adds up. I mean, I'm --

GIGOT: How so, Bill?

MCGURN: I'm afraid what's going to happen, we're not only going to get bad policy, because Republicans --

GIGOT: A tax increase.

MCGURN: -- a tax increase and so forth. But we're going to -- the Republican Party or the conservatives that oppose that bad policy, are also going to get the blame for the consequences. And this is why. Because if the economy goes into the tank because we get this stuff, the Republicans will -- because we don't get it, or whatever way, the Republicans are going to be blamed for being obstinate if they oppose some of the tax increases, or if they go along, their own base is going to revolt over the tax increases. So, it's a no-win situation.

And the reason is, as Kim sort of alluded to, this is a president who uses the word "compromise" as a substitute for actually compromising. And that's -- that's solidified by a press corps that doesn't ask him a single question, what are you willing to give. You know, when John Boehner appears, they are all saying, are you willing to accept higher rates. No one says, what are you going to do about entitlements or anything. There's no question of the president whether he will compromise and what that would look like.

GIGOT: Steve, what do you think the Republicans ought to do here? Is there a way out for them or are they going to be pushed back into a corner where they have no choice but to concede that they have to raise tax rates or else go over the cliff and get blamed for that?

STEPHEN MOORE, SENIOR ECONOMICS WRITER: Well, it's a tough situation for them. There's no question about it because, as you know, the default position, if we don't do anything, is for the taxes to go up on everybody on January 1st.

GIGOT: Right.

MOORE: That's something I think both sides want to avoid.

It's very interesting, the thing that happened this week to start the week, was, who was the first person that Barack Obama met with in the White House since his election -- the labor unions leaders, the labor bosses.

GIGOT: Right.

MOORE: That tells a lot about who is driving policy at least at the start of the second term. And the labor unions have basically said we want no compromise on this. We'll take it to the people. So, I believe, Paul, that this president is sporting for a fight on this. He wants to take this case to the people. And the Republicans -- Kim is right. The Republicans have moved a long way, saying, look, we'll negotiate this. But when I talked to the minority leader --

GIGOT: Right.

MOORE: -- this past weekend in the Senate, Mitch McConnell, he says we'll give anything, but one thing we're not going to do is raise these tax rates because they genuinely believe -- and I think they're right about this -- raising those tax rates could cause a double-dip recession.

GIGOT: Right. OK, fair enough. But then that means -- what's the alternative --


-- if the president insists on raising tax rates and the Republicans say no. All the president has to do is let the taxes go up on January 1st.

MOORE: That's true.

GIGOT: He gets the tax increase anyway and then he can beat the heck out of the Republicans for blaming whatever economic consequences happen. And then in two months, they're coming back to him and saying, OK, we give in. But he's already got the tax rate. So my question to you, Steve, is, what's the way out here? Is there a way out that if you see it for the Republicans?

MOORE: Well, the Republicans -- and we showed in our editorial this week, the numbers do add up. The Republicans should basically say, look, we will close the loopholes. By the way, if do you that, the people that get hit the hardest are the rich.

But I think the most important outcome is to make sure that Barack Obama does own this economy. I mean, you've seen what's happened to the stock market in the last week, since Obama was reelected. And he's been talking about raising the rates. We've lost over 650 points on the Dow Jones. So, I'm not so sure that the investment community or even the public really wants those rates to rise as much as Barack Obama does.

GIGOT: And just on the math, if you close -- if you put a cap on deductions of 50,000 a year per individual --

MCGURN: Right. Right.

GIGOT: -- over 10 years the estimate is you get almost $800 billion in tax revenue, which is --

MCGURN: That's from the Tax Policy Center.

GIGOT: Right, which is center-left operation. But that's -- and that's roughly the same as you get from raising the tax rates the president wants.

MCGURN: Look, you've outlined on the editorial page several possible compromises. The truth is that there are compromises that could be made, but I don't think that the president is interested in those --

GIGOT: Right.

MCGURN: -- the actual economic things. This is a political fight that he wants, that he's pushing, and he has a lot of cards.

GIGOT: Kim, so you think we're going over the cliff or not right now? What are the odds.


STRASSEL: Look, I do think the president is playing a slightly dangerous game in that, if his argument or his bet here is that the Republicans are going to be more responsible than him, he better hope they are, because, otherwise, he could end up getting some blame for pushing us over the cliff.

GIGOT: Yes, that's right. When the things tend to go bad, both sides get the blame. So, I think it's a high-risk game, particularly with economic growth.

When we come back, a week after his resignation, former CIA Director David Petraeus has testifies behind closed doors about Benghazi. Will Congress get the answers it's looking for?


GIGOT: A week after resigning his post, former CIA Director David Petraeus testified behind closed doors Friday on the September 11th attacks on the U.S. consulate in Benghazi, Libya, that killed Ambassador Chris Stevens and three other Americans. His testimony before the House and Senate Intelligence Committees capped off a week of increasingly bizarre revelations about the four-star general's affair with biographer, Paula Broadwell.

We're back with Bill McGurn and Kim Strassel. And also joining the panel is "Wall Street Journal" editorial board member, Matt Kaminski.

Matt, what have we learned now, the election's over this week, about the Benghazi attacks.

MATT KAMINSKI, EDITORIAL BOARD MEMBER: Really, the drip, drip of information keeps coming out. And it's coming out too slowly. We've learned far more about David Petraeus's personal life in the last five days than we have about Benghazi in the last two months.

But I think the important thing this week, especially on Friday, was that General Petraeus was reported to have told the Senate Intelligence Committee in closed hearings that he thought it was terrorism within 24 hours, which calls into question the narrative put out by the White House, subsequently, that they -- and for the eight days afterwards, they said, no, no, al-Qaeda had nothing to do with it. This was the fault of the, you know, anti-Islam video on YouTube.

GIGOT: The video on YouTube.


GIGOT: Bill, does that mesh with what we've been told the CIA had been telling Susan Rice?

MCGURN: Well, I think the real problem for General Petraeus in this story is that it not only does not mesh with what the White House was saying, it doesn't mesh with what we're told General Petraeus said in the immediate aftermath, where he is said to have talked about a spontaneous flash mob --


GIGOT: To members of Congress.

MCGURN: To members of Congress behind closed doors as well. And this is the problem. It's not only that we know that that's not true now. It's that, at the time, there were a lot of other indications that indicate that was not true. It was denied by the Libyan prime minister.


MCGURN: The CIA station chief called it an act of terror. We had the FBI and, I believe, the National Center for Counterterrorism also giving briefings, saying this.

GIGOT: That's right.

MCGURN: Why was General Petraeus's testimony then so at odds with other parts of the community?

GIGOT: But does this -- would this give -- I mean, what does this mean for, say, Susan Rice and the administration then? Is this -- does this help them politically by shielding them or does Petraeus here, saying I thought it was a terrorist attack, does that mean this puts, for example, Susan Rice's statements more up to scrutiny?

KAMINSKI: Well, I think it doesn't really answer the fundamental question, did they deliberately mislead on this case for political reasons because they were driving the narrative that al-Qaeda had been decimated and the war -- the tide of war is receding, or was it a question of incompetence. Neither of those two things is good for the administration. Although, it's after the election, so they can deal with the consequences.

GIGOT: Let's take a look at the president talking about Susan Rice, the U.N. ambassador, who many think he will nominate to succeed Hillary Clinton as secretary of state.


OBAMA: For them to go after the U.N. ambassador, who had nothing to do with Benghazi, and was simply making a presentation based on intelligence that she had received, and to besmirch her reputation is outrageous.

GIGOT: Kim, that sure sounds like a president who is ready to nominate Susan Rice for the State Department.



GIGOT: And my sources suggest that that's exactly what he's going to do. Of course, my source haves been wrong before. But if he -- and I've been wrong before. But if he does that, is this going to be a really big fight?

STRASSEL: Oh, it's going be to be a huge fight because you have had Republicans come out already and say, you drop her in the Senate nomination battle, and then we are going to go to the wall on this one. But I do believe you're right, not only is the president taking an unusual step of devoting during the press conference to this very hefty defense of her, but you have seen across Washington Democrats in all types of forums now coming out to defend Susan Rice and make the case for her. So, in this case, you're probably right, Paul.



So, what do you think, Matt, as we go forward? Are we missing something here in terms of the larger focus on Petraeus and his personal problems? What -- is there a larger failing here about the administration in Benghazi that may, for example, implicate secretary of state Clinton, who has gotten off -- she says, from Peru, she wanted to take responsibility. But what does that mean? She's not testified at all.

KAMINSKI: Not followed up on that.

GIGOT: Not really followed up at all.

KAMINSKI: Well, I think you have -- it really means there's been a -- this is -- they would love to blame it on Petraeus. He's now been disgraced and he's out of office. You can blame it on the CIA. The problem was this goes back to the White House and certainly to Hillary Clinton. We have a failing. The failing was on the day of the attacks. But there's a broader failure of our policy in Libya. We were dragged into this into intervening last year. We very much disengaged early on. We didn't support a pro-Western secular government in Libya and try to reign in their militias. And now we've suffered a terrible defeat in Benghazi itself. We've been forced to pull out the CIA mission there and pull out our --


GIGOT: By not helping the opposition, we've ceded the ground to the Qataris, who did then arm the Islamist, who they favor, and now we've got a proliferation of Islamists in Libya.

KAMINSKI: Yes. And I'd add one point that relates to Susan Rice and the larger point. The president said, why are you blaming Susan Rice who knows nothing about Benghazi. Why was Susan Rice chosen it go out there if she knows about it? Why was not Mrs. Clinton or one of her deputies? It's either because the people who knew things didn't want to be out there on the record or they thought that she would just read what she was given and not disclose something.

GIGOT: Because she -- because she knew she was a loyal political operative and do exactly what --


KAMINSKI: What all of this leads to, whether it's General Petraeus or Hillary, there are questions about whether people were being truthful or were compromised in some ways, and that's not good for us.

GIGOT: All right. Let's hope people keep digging.

When we come back, could it be some good news? A new report says the U.S. is on track to surpass Saudi Arabia as the world's largest oil producer. But will the Obama administration regulate this boom until it goes bust?


GIGOT: We thought we'd bring you some good news this week. The International Energy Agency reported Monday that the U.S. is likely to surpass Saudi Arabia as the world's largest oil producer as early as 20/20. IEA predicts that the U.S. will increase its production to 11.1 million barrels a day by 2020, up from about 6.9 million barrels in 2008. That is if the Obama administration allows it.

So, Steve, you've been out to the shale in North Dakota where it's coming from.

MOORE: Right.

GIGOT: It's based on new technology, so-called hydraulic fracking --

MOORE: Right.

GIGOT: -- and horizontal drilling, private initiative and risk taking. What does it mean for the U.S. energy markets?

MOORE: Well, this is such a great, great pro-American story. And by the way, Paul, it's not just oil. It's also natural gas.

GIGOT: Right, sure.

MOORE: My goodness, we have more natural gas than almost the rest of the world combined. And it's driven by these technological improvements. And by the way, we have about a five or 10-year technological lead on all the countries we're competing with.

It's interesting, Paul, if you look at the last three or four years, do you know what industry has created more than any other industry in the United States?

GIGOT: The electric car industry, Steve?


GIGOT: Sorry, not that, no.


MOORE: No, not that one.


Oil and gas. And the thing that's so amazing is the president is doing almost everything he can to try to hold this back with regulations and with not allowing permitting. Most of the oil and gas development is going out on private lands. And this is an area where the president has to get with the program because we could literally create millions more jobs if we get this story right.

GIGOT: Kim, the consequences here economically are big for downstream production, things like manufacturing --


GIGOT: -- that had left the -- it wasn't -- I talked to one CEO, Dow Chemical, who had planned years ago never to build another plant in the United States. And now he's making a $4 billion bet on manufacturing and chemical production in the United States. That's extraordinary. You're seeing that all over places like Pennsylvania and Ohio. So, this could really be good. What's the risk politically in the coming years?

STRASSEL: To whom?

GIGOT: To this -- to this oil boom, natural gas boom?

STRASSEL: Oh, well, the risk of -- risk from the Obama administration is enormous. I think one thing that's interesting about this EIA report is it's based on current assumption. It doesn't take into account what we could be getting if we were actually actively going after natural resources, which, by the way, prior generations of Americans set aside exactly for us to use in places like in Alaska, on shore, the gulf, off shore at the coast. The president has resolutely refused to tap any of those. And in addition, what you see is his administration trying very hard to think of a way to wiggle its way into this fracking regulatory arena, which up till now, has been monitored and overseen entirely by the states, with great success. And that has really got a lot of president's environmental allies unhappy because they feel they don't have control. And so they're pushing the administration to insert itself in the area.

GIGOT: The irony is that natural gas production, Bill, actually reduces greenhouse gas emissions because it replaces coal, which is more carbon intensive.

MCGURN: Right.

GIGOT: So this could be a win-win for environmentalists and for people who want cheaper energy.

MCGURN: Yes. Although, if you look at the environmental web sites, they're already worried. They hate --


GIGOT: Oh, they hate it, yes, especially the --


MCGURN: The issue here is, are we going to be Texas or California?

GIGOT: Right.

MCGURN: And so far, for four years, the president has followed California's model. California has a lot of reserves and so forth.

GIGOT: Right.

MCGURN: And they've created, what, 20,000 oil jobs in the last 10 years, where Texas has created 200,000. And these are fairly well paying jobs. So that's the issue before the Obama administration.

The second point is the market works. The reason that we can now extract shale, not just technology, but it's with oil prices higher, it becomes economically possible to these things that we wouldn't price-wise be possible beforehand.

GIGOT: Well, we've been handed this incredible gift by Mother Nature. Let's hope we don't blow it on the politics.


MOORE: We will.


GIGOT: We have to take one more break.

When we come back, our "Hits and Misses" of the week.


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

Kim, first to you.

STRASSEL: A miss to the Federal Emergency Management Agency, which announced this week that, surprise, it will probably have to ask Congress for a bailout for its Flood Insurance Program after Hurricane Sandy. The National Flood Insurance Program has been broken since inception because it fails to require homeowners in low-lying areas to pay premiums adequate to cover the costs. And as a result, encourages more home building in areas like this. Federal taxpayers everywhere else have to foot the bill. And they're already $18 billion in the hole, probably another $12 million thanks to Hurricane Sandy. This is one of those other disasters everyone saw coming and Congress has, nonetheless, failed to credibly address.

GIGOT: All right, Kim.


KAMINSKI: Paul, this is a hit to the French this week for recognizing that Syrian opposition, which is fighting a long, drawn-out war against President Bashar al Assad. They've been joined by the Turks and the Gulf States as well, which may open up a way to try and arm them and give more support. And hopefully, the U.S. will soon follow.

GIGOT: All right.


MOORE: The people in Miami are hopping mad this week. They just spent $500 million on a new baseball stadium for the Miami Marlins. They feel double-crossed. This week, the owner of the team sold off three of their best players in a big cost cutting move. What's ironic about this story is that the Miami Dolphins want the taxpayers to pay for renovations for their football stadium down the street in Tampa. They want a new baseball stadium all paid for by taxpayers. Paul, if you were a Floridian, what I would say to these sports owners at taxpayer-financed stadiums, no mas.


GIGOT: All right.


Matt, very briefly, is the U.S. going to intervene in Syria?

KAMINSKI: No sign of it yet, but hopefully after the election, we didn't want to touch it, but we'll see now.

GIGOT: All right.

That's it for this week's edition of the "Journal Editorial Report." Thanks to my panel and especially to all of you for watching. I'm Paul Gigot. We'll hope to see you right here next week.

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