Can Republicans deliver on a Christmas tax cut?

This is a rush transcript from "Journal Editorial Report," November 25, 2017. This copy may not be in its final form and may be updated.


PRESIDENT DONALD TRUMP: With the Democrats giving us no votes for tax cuts for purely political reasons, obstructionists, it would be up to Republicans to come through for America. I think they will. I hope they will. It's up to the Senate. If they approve it, the House and the Senate will get together. I will be there right in the middle of it and we will come up with a bill that's spectacular for growth and spectacular for the people of this country.


PAUL GIGOT, HOST: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

That was President Trump this week promising the American people a tax cut for Christmas and saying it's up to Republicans to deliver. All eyes are on the Senate, which is set to debate its plan when senators return from Thanksgiving break next week.

Former Texas Senator Phil Gramm is an economist who chaired the Senate Banking Committee. He's now a visiting scholar at the American Enterprise Institute.

Senator, great to see you. Thanks for coming in.


GIGOT: You have seen a lot of tax legislation in your day, helped pass good legislation. How do you see the two bills now, just as policy, as tax and economic policy, good or bad?

GRAMM: I think they are both good -- represent good policy. I think the debate is that a lower level than I have before seen, people forget that 56 Democrats in the House voted for the Reagan tax cut. The tax reform in 1986 got huge bipartisan votes. It's a shame that things are as partisan as they are.

GIGOT: Yes, that's where we are right now. I think they will get no Democratic votes in the Senate unless Republicans show they can pass it. But do you think there's enough pro-growth policy in these bills to energize the economy over next two or three years, get up to 3 percent growth annually plateau?

GRAMM: Well, first of all, the economy in the last two quarters has grown by 3.04 percent. The New York fed came out yesterday and projected a growth rate in the third quarter of 3.75 percent.


GRAMM: So just taking the foot of government off the throat of the economy where it's been for the last eight years is already showing a positive effect and one of the points I have tried to make to people who are legitimately concerned about the deficit. Let me say legitimately concerned because it's hard to take Democrats seriously when they talk about the deficit when in the last eight years they doubled the debt of the country.

GIGOT: Right.

GRAMM: But I do take people like Corker seriously about the debt.

GIGOT: Senator Bob Corker of Tennessee.

GRAMM: Yes. I think the good news is that not only are we currently growing at a rate that would create enough new jobs and enough new growth to pay for the tax cut as it is now structured but I think we have a real opportunity to outperform it, to pay for it we have to generate 2.6 percent real growth over the next ten years, from 1946 to 2009 the economy grew to ten recessions and the beginning of the 11th recession by 3.4 percent. Only during the Obama presidency in the whole post war period did we fail to achieve a level of growth that would pay for this tax cut.

GIGOT: All right, now --


GRAMM: The question is, is this a new norm or was that bad policy?

GIGOT: Well, that is the big question. 3 percent growth on annual basis since 2005 which has never happened before since the bureau of economic analysis kept statistics going back to 1930 as I can see it.

But let's look at the individual parts of some of the parts of this bill, as I look at it, I think the two bills, the corporate and business side tax reform is a lot better and stronger than the individual side, which is frankly kind of a mess with a lot of tax credits mixed in, not a real cut in marginal rates very much. How do you see it?

GRAMM: Well, I think this is basically a corporate tax cut.


GRAMM: But there's a lot of reform in here. As I measure it, $6.5 trillion tax cut over ten years, there are about $5 trillion of revenue increases for a net of about $1.5 trillion. And I think it's important to note that what you take out is about as important as what you put in, so I think that not only do I believe the lower-corporate rates are very important and very pro-growth, but I think eliminating all of the special interest provisions in the tax code will help the economy by eliminating a system that misallocates resources. I do think the personal income tax, part of this change is weaker, but basically because you've got $1.5 trillion to work with, I think that's a very conservative number. The good news is I believe that we are going to outperform it and perhaps outperform it substantially. The bad news is it makes it harder to do this. But that's the constraint we have imposed, and we have to live with. And I think we can still pass a good tax cut that will give us 3 percent-plus growth again.

GIGOT: And if you get 3 percent growth with the economy, the labor market very tight now in much of the country, you really do have low unemployment rate, you are going to see that flow through wages, will you not?

GRAMM: Well, don't forget, we've got very close to historically low-labor force participation in the country. We've got huge numbers of people who have been pulled out of the labor force by government policy over the last eight years. Don't forget during the Reagan years, not only did labor force participation go up, but remarkably the number of people on disability declined dramatically.


GRAMM: As I used to say to President Reagan, people are getting up out of the wheelchairs and going to work.



GRAMM: When the economy is good, the labor force -- the labor market response -- responds to it. It's true under the policies of the previous eight years, the labor force is very tight. But if you go back to the policies that existed in America for 200 years prior to that, we've got a lot of slack in the labor force. There are a lot of people who could and would come back into the labor force. Productivity has been stagnant during the Obama era, investment was so low that it hardly replaced depreciation, so it didn't contribute to economic growth. Those are the things we can improve on dramatically. The problem in the economy is not that the gods have turned against us, the problem is we've had policy that was antigrowth and had other objectives, maybe they were good and maybe they were bad depending on your perspective, but they weren't pro-growth, pro-job.

GIGOT: All right, thank you, Senator. I appreciate you being here.

GRAMM: Thank you.

GIGOT: When we come back, the great tax escape with top earners already fleeing high-taxed states. All eyes on the Republican plans to cast or eliminate the state and local deduction. A look at what that could mean for blue-state governors and legislators next.


GOV. ANDREW CUOMO, D-N.Y.: As far as I'm concerned, this is President Trump saying, "drop dead," to New Yorkers.




CUOMO: It's terrible for New York. It would, number one, cause most New Yorkers to pay a higher tax bill. Number two, it affects the competitiveness of our state, because to the extent you raise taxes in New York, you push people and push businesses to other states.


GIGOT: That was New York Governor Andrew Cuomo earlier this month attacking the Republican plan to overhaul the tax code. The GOP push to cap or eliminate the federal deduction of state and local taxes, has officials in high-taxed states like New York, New Jersey and California seeing red, worried that residents will be left paying even more.

Let's bring in Wall Street Journal columnist and deputy editor, Dan Henninger, editorial board member, Allysia Finley, and assistant editorial page editor, James Freeman.

Allysia, coming as you do from California, you know that well, but it's interesting to see the politicians like Cuomo basically blame feds for their own tax policy?

ALLYSIA FINLEY, EDITORIAL BOARD MEMBER: Right. Federal taxes on wealthy residents. What you say in California, in New York about 12.7 percent and you're seeing a lot of the high earners moving to Florida where there is zero income tax, especially recently when they raised taxes.

GIGOT: You looked through the data in IRS statistics recently and you monitored that. It's really dramatic how much people who pay a lot of income tax are moving.

FINLEY: Right. Just Florida gained about $40 billion in adjusted gross income between 2012 and 2015.

GIGOT: And Florida has no income tax?

FINLEY: Again, and 57 percent of those were high-earners.

GIGOT: Wow. That's pretty amazing.

Dan, another high-taxed state, gentleman --




GIGOT: We are all here. But do you think -- maybe the by-products of this that we are hoping for is maybe these states will have to adjust their tax policy, so maybe one result federal tax reform could be state and local tax reform.

HENNINGER: Well, I think that's true, we saw Andrew Cuomo himself suggesting that high-income people may leave the state, not may, they will, they have been, and this could spur the outflow as well and, you know, you've got governor elect in New Jersey, Bill Murphy, wants to impose millionaire's tax.

GIGOT: And 8.97 to 10.57.

HENNINGER: Yes, they need the money. The president of the Senate, Sweeney, who is a Democrat, has said, whoa, we have got to think about the millionaire's tax because this could do more damage than good to us. He's voted for it, saying, at this point, we have to rethink it. I believe that presumably at-risk Republican members of Congress in those states should say, look, I voted against tax bill, I tried to protect this, now we have got to fix our own and put the blame back on Democrats in those states.

GIGOT: In the House, James, they eliminate state and local tax except for property tax exception, capped at 10,000, most of the country don't have more deduction in 10,000 in property taxes. The Senate eliminates entirely. Is this going to pass, what do you think?

JAMES FREEMAN, ASSISTAQNT EDITORIAL PAGE EDITOR: Yes, I don't think you are going to get much of anything of state and local deduction out of this process and part of it is Democrats in the Senate representing these blue states have decided not to play the game, not to engage and not to negotiate at all, they are not participating in the tax reform effort.

GIGOT: If they had participated, if Chuck Schumer said, we want to sit down and negotiate, Paul Ryan, we want to negotiate, do you think they could have made accommodation?

FREEMAN: No question. A lot of ways to get growth, incentivize individuals, incentivize businesses to invest more. If Schumer and the other Democrats said protecting this is important to us, but we are willing to grow with you on growing the economy, they could have cut a great deal. It's so progressive, the top 100 filers generate more than 5 percent of Jersey tax revenue, 100 people.


Hedge fund guy, David Tepper (ph), leaves in a few years ago, it's a big deal for state budget. One guy makes a lot of money. But the point is what we are doing in New Jersey is driving out highly successful people and that's one of the reasons we grow slower than the rest of the country.

GIGOT: Have you considered a commute from Pennsylvania?


FREEMAN: No, a lot of people are considering that.


It's a long way to go but you are starting -- Allysia wrote about the move to Florida, and Pennsylvania as well. You're seeing that - it only accelerates I only state Senate president could put brakes -- which by the way, it's $500,000 if you're in New Jersey politician and want to take your money.


GIGOT: I assume, Allysia, some of the Democrats -- Nancy Pelosi and Schumer, given up influence the bill but they think they can use this politically.

FINLEY: Against Republicans, especially in suburban districts, Darrell Issa in California, Walters, Orange County, where they have high-property taxes, in part, because it's high property values, but also in New York, the swing districts.

GIGOT: Up in Winchester.

FINLEY: Right. Which have extremely high property taxes as well/

GIGOT: All right, thank you all.

When we come back, President Trump and Russian President Vladimir Putin speaking by phone this week about the conflict in Syria. But with Putin pushing for a political solution to the almost seven-year-old civil war, could Russian and Iranian interests prevail in the region?


GIGOT: President Donald Trump and Vladimir Putin speaking by phone for more than an hour Tuesday. The Russian president reportedly briefing Trump on his push for a political solution to the civil war in Syria. The call came just one day after Putin met with Syrian Dictator Bashar al Assad in the Black Sea resort of Sochi, the site of a summit this week on the Syrian conflict with leaders of Russia, Turkey and Iran.

We are back with Dan Henninger, "Wall Street Journal" editorial board member, Mary Kissel, and Columnist Bill McGurn.

Mary, more than an hour with Putin, what were they trying to work out?

MARY KISSEL, EDITORIAL BOARD MEMBER: Nothing good comes from a conversation that lasts over an hour with Vlad, Paul.


I don't think there is anything good coming out of Syria. I don't think there's much to discuss because, essentially, what the Trump administration has done is cede Syria to Iran, Russia and Turkey. They set up the so- called deconfliction zones, which are better called surrender zones, Paul. What happens is the force that is the United States has backed in Syria to get rid of the Islamic State --

GIGOT: Right.

KISSEL: -- they are going to be wiped out by Russian and Iranian forces and Syrian government forces.

GIGOT: The whole idea of surrender, deconfliction zone is to make sure that the fighting stops. That's the idea, right? So these people can coexist. You're saying that's not happening?

KISSEL: The only thing that President Trump seems to care about is eliminating ISIS.

GIGOT: Right.

KISSEL: But the big question --


GIGOT: That's almost done.

KISSEL: That's good and we should give him credit for that. But the question is what comes next? Is Assad going to stay? Certainly looks like it. How are Syrians going to return to a country run by Assad where his prison camps are still there and he's torturing people?

GIGOT: This is how Trump would respond, Mary, I campaigned to get rid of ISIS, I didn't campaign to intervene in a --


GIGOT: -- in a civil war. You know what they say, it's Obama's failure.


GIGOT: It's not on my watch. Why should I care?

KISSEL: He has no agency as the United States president. Just last month, Paul, President Trump came out and said Iran is a fanatical regime. We have to contain Iran. And he's going to cede Syria to Iran and he's going to Russia bases on the Mediterranean in Syria, and allow them to threaten the southern points of NATO? It makes no sense.

GIGOT: Bill, how do you see it?

BILL MCGURN, COLUMNIST: I agree with Mary. This isn't a political solution, this is a Russian solution. Remember we're in the area because of the U.N. invitation. Russia is in the area because of Assad.

GIGOT: Assad invitation.

MCGURN: That's an important distinction. Syria is the Russian entry way to the Middle East to have bases and so forth. It's going to get worse. Obama was right the first time when he said there's no bringing Syria together as long as Assad stays. Look at how he has played his cards. He played them well. James Mattis once gave a speech that he said the single biggest thing that we could do to check Iran's ambitions is to deny them Syria as a client state. There are people that know this. And, again, the president sounds good notes but the policy so far in Iran, we don't have an Iran policy in the Middle East yet, and he's going to find that's going to create a lot of problems down the line.

GIGOT: Dan, another move recently, the Russian's vetoed the renewal of a mandate of a chemical investigation team that was supposed to go in and investigate who is using chemical weapons in Syria. The United States very much wanted that to be renewed. Russia said no because, of course, Assad didn't want it, because he's the guy who has used chemical weapons.

HENNINGER: Yes. And, therefore, I think, that the White House really should have been giving us a read-out of this conversation between Vladimir Putin and Mr. President the other day because we have to get some sense of where the president is going.

Look, Paul, whatever his desires to stay out, we cannot withdraw from the region. Russia currently serves as Iran's air force in Syria, the Iranians in deconfliction zone where they are not fighting. The Iranians sit within an hour's drive of the Golan Heights. The Israelis are acutely aware of that. You have transition going on in Saudi Arabia. The Saudis are supposed to be allies, but if they see us pulling back in the midst of all this, they are going to start looking towards the Russians or even the Turks.

GIGOT: Are we seeing the seeds being planted, Mary, of Israeli-Iranian conflict over Syria, parts of Syria?

KISSEL: Yes. I think you are. We are alienating the very people in Syria and in Iraq, the moderate Sunnis, the Kurds, the people who fought with us to eliminate the Islamic State, to say where are we supposed to go now. Many of those people may turns towards al Qaeda. Trump may proclaim that I have eliminated ISIS, he may give Tehran that land bridge from Tehran to Damascus that sows the seeds for a much greater conflict to come.

GIGOT: Briefly, Bill, what about the argument that, you know what, we can't commit more forces. That'll be military commitment, minimum air power and maybe more.

MCGURN: I don't think we have a choice. First of all, we have a lot of assets there. One of the things about Iran is that the Saudis and the Arab world are on our side on this. They are not all asking for U.S. troops, but they'd like support and help in checking Iranian ambition. That's what they're really afraid of.

HENNINGER: And one quick point, we don't want to lose Iraq. Iraq wants to stay aligned with the United States than Iran.

GIGOT: Still ahead, President Trump looking to keep a campaign promise by renegotiating NAFTA, but as talks with Mexico and Canada continues, fears are growing that the U.S. will pull out of the pack altogether. What it would mean for the U.S. economy, next.


GIGOT: Trade representatives from the United States Canada and Mexico concluded a fifth round of NAFTA talks this week ahead of a March deadline to renegotiate the trade deal. President Trump, who has called the North American Free Trade Agreement a disaster, has threatened to pull out of the pack altogether unless big changes are made, something my next guest has said would be a political and economic debacle.

John Murphy is senior vice president for international policy at the U.S. Chamber of Commerce.

Thank you very much for being here.


GIGOT: So you saw the fifth round of talks, didn't seem to go well. U.S. came out complaining about Mexico and Canada. Where are we on the talks?

MURPHY: Well, the talks are not going very well, and there's blame to share around. But I think many in the U.S. business community are most concerned is a series of poison-pill proposals that the U.S. has put forward right now. These are ideas that don't enjoy support across the U.S. business and agriculture community that don't really have identifiable constituencies or really anyone who would benefit from them. And at a time when it makes a lot of sense to modernize NAFTA and bring it to 21st century, we are concerned that this would instead lead to breakdown in the path.

GIGOT: You used pill, motive to provisions is to basically not get a deal so that the U.S. has excuse to pull out. One of those provisions the five- year end to the -- renewed pack every five years, how can you make business decisions if you don't think the pack will last more than five years?

MURPHY: Well, that's exactly right. At a time when negotiate, when we are trying to find ways to boost economic growth through tax reform or pulling back on regulatory overreach, blowing up this trade agreement which is our most important one is a real concern and having this sort this idea that within five years the agreement could simply go away, that's not what the business community needs, businesses need to have the confidence and certainty that will allow them to make long-term plans to invest in brick and mortar and to hire and invest and that's what this kind of a proposal would undermine.

GIGOT: OK, one of the other provisions that's been criticized by business folks that I know, the rules of origin for content here in north America moving under the pack from now 62.5 percent, the United States wants to bring it to 85 as I have read it. That would -- that would really toss supply chains globally, particularly the automobile sector, into real disarray, would it not?

MURPHY: Absolutely, that's why there is an incredible united front among not just the big three, GM, Ford and Chrysler, but foreign-named plates, Toyota, Volkswagen, that have invested in the United States and manufacturers that are suppliers to all of those companies, they formed a united front to oppose this proposal. The only thing that it would accomplish would be to raise the cost of manufacturing here in the United States. It would create incentive for manufacturing to go outside of north America instead. And so we are pushing back hard on that. It's a proposal that has no identifiable beneficiary in the United States.

GIGOT: All right, I interviewed Wilbur Ross, the Commerce secretary, last week and I asked him about NAFTA pulling out. He said, look, don't worry, Mexico and Canada will be hurt much more economically by us withdrawing than we would, so they are going to get with it and agree to our terms, so don't worry, we will get a deal, but it'll be on our terms. What do you make of that analysis of the psychology of Mexico and Canada?

MURPHY: So I followed those comments closely, Paul, and, you know, there's acknowledgment there that pulling out of NAFTA would hurt the United States, so I suppose that's a bit of progress, what kind of a proposal is it that would hurt us even if it is hurting us some, studies show that withdrawing from NAFTA would cost 1.2 million American jobs, so it doesn't make a lot of sense. Another thing that's missed in this analysis is that Canada and Mexico are sovereign states with their own domestic politics, the ability of Mexico, in particular, to just say yes to anything that the Trump administration asks for are things that are not in interest is pretty limited at this point with elections looming next July.

GIGOT: You think that they, indeed, for domestic political purposes particularly in Mexico basically say even if it hurts us we can't say yes to Uncle Sam's dictates?

MURPHY: A lot of hot rhetoric in the United States over the past couple of years about Mexico and for any politician in Mexico to stand up and stand with the United States at a time when the United States is pushing proposals that could be damaging to Mexico and to the United States, it's just not a lot of wiggle room there for them.

GIGOT: Do you see this? Do you really think that this may end up breaking down and we don't get a deal and the U.S. withdraws?

MURPHY: I think it's a real possibility, that's why we are hearing so much concerned particularly from states across the heartland, industrial states like Michigan, Wisconsin, agriculture states like Iowa, Missouri, and border states like Texas and Arizona. These are some of the states that is would be hurt the most by withdrawing from NAFTA.

GIGOT: Those sounds like Trump states.

MURPHY: That's the irony. We have analyzed these and ranking the state that is would suffer the most from withdrawing from NAFTA and what we found that it's overwhelming those industrial states. It's American manufacturers who export more "made in the USA" goods to Canada and Mexico than they do to the next 10 countries combined. And it's farmers and ranchers who have seen exports to Canada and Mexico quadruple under NAFTA. These folks are pushing back. Governors have gotten an earful about this and people in Washington and Congress as well.

GIGOT: Thank you, John Murphy. Appreciate it. Fascinating.

MURPHY: My pleasure.

GIGOT: Still ahead, as rumors swirl of a retirement early next year, President Trump adds five new names to his Supreme Court short list. A closer look at who made the cut and who they might replace on the nation's highest court, next.


GIGOT: President Trump added five new names to list of potential Supreme Court nominees last week as rumors swirl of possible retirement early next year. The 81-year-old Justice Anthony Kennedy seems as the most likely justice to step down. It would be President Trump's second appointment to the nation's highest court.

We are back with Dan Henninger, Allysia Finley and Bill McGurn.

Bill, what do you make of these new names?

MCGURN: I think it's a good list. Two of them I know. Bret and Amy Barrett, I know from Notre Dame Law School. I think we have Ted Cruz to thank for this because --

GIGOT: Ted Cruz, why?

MCGURN: In debates, Ted Cruz said that Trump would appoint bad justices. Trump was forced to produce a list. He produced a good list. I think this is a good precedent. Instead of saying I'm going to appoint judges for life, name some names. I think he can claim a mandate and put it out there.


HENNINGER: We all have mysterious views on this. We have to thank Maureen Scalia, the widow of the late Justice Scalia, who Trump was talking a fair amount to during the campaign and I think he got to like her and decided he we wanted to appoint people in the mold of Justice Scalia. And with the Federalist Society and people like Leonard Leo, that's precisely what he is doing.

GIGOT: One big missing you mentioned Maureen Scalia. Jeff Sutton on the Sixth Circuit Court of Appeals wasn't on it and should be. He clerked for Justice Scalia, favored of Justice Scalia and tremendous jurist, and puzzling to me that he's not on the list.

But, Allysia, Amy Barrett? Remember, she was --


FINLEY: She was criticized by Dianne Feinstein during Senate hearings that were too dogmatic.

GIGOT: I think Dick Durbin questions


GIGOT: Yes. Are you an Orthodox Catholic?

FINLEY: Catholic.

GIGOT: That was a stunning question at a confirmation hearing. And basically said, if you are too Orthodox in your religious belief, maybe you don't have the ability to serve on the nation's highest court. But now, Trump is raising the ante. She has been confirmed, recently, to the federal appellate court bench. Now she's on the list for the higher court. And I think in part the Democrats gave her such a hard time because they fear she may be elevated.

FINLEY: Right. Trump is taunting the Democrats about this. What you also see is the justices that made the list are also very young. Most of them are in their 30's, early 40's. Bret is 52, and that also goes well for a bench.

GIGOT: The rule of thumb, you don't want somebody to serve 40 years. Mid- 50 seems to be the cutoff, Dan. Unfortunately, for those of us, we must give up aspirations to serve on the court.

HENNINGER: You can't have everything.


Let's extend this point. There are a lot of people who have problems with Donald Trump personally during election it was expected that he couldn't possibly beat Hillary Clinton. This issue was one of the primary reasons the people voted -- many people voted for Donald Trump, not just the Supreme Court but appellate court appointments as well. We are seeing the importance of that decision. I think the Democrats have only themselves to blame because, as we were just pointing out, and Allysia said, Senator Feinstein questioning Amy about her religious beliefs. The left has pushed the culture so far to the left that they are now paying a price, and the voters out there saying, we need a balance, what we needed a balance like the justices.

GIGOT: Bill, a lot of rumors out there that Justice Kennedy could resign, he would step down after many, many years. That was what we heard last year.

MCGURN: Right.

GIGOT: In 2018, Republicans have a real chance to lose the Senate, I think tough year for Republicans, if you want any Supreme Court justice by Donald Trump approved, nominee approved you really have to do it this year if you're Kennedy because there's no guaranty next year. The Democrats take over the Senate, there won't be a single nominee.

MCGURN: Shouting Merrick Garland, and so forth. It's especially important for Republicans because the court, and especially the Supreme Court, that's a Democratic legislature. That's where they go because they can't get votes in state legislatures and so forth. It's very important to get jurors who are Constitutionalists and not people who want to make up the law and institute it.

GIGOT: All right, thank you all.

When we come back, as the Trump Justice Department sues to stop the AT&T/Time Warner merger, could the president's own words complicate the case?



TRUMP: AT&T is buying Time Warner, thus CNN, a deal we would not approve in my administration because there's too much concentration of power in the hands of too few.


GIGOT: That was then-Candidate Donald Trump during last year's presidential campaign promising to block a proposed merger between AT&T and Time Warner, the parent company of CNN. And this week, the Justice Department filed suit in federal court to block the $85 billion deal saying it violates antitrust law and results in, quote, "fewer offerings and higher bills for American families." A lawsuit is an unusual move for the DOJ, but one officials say it's not related to the president's stand during the campaign or frequent criticism of CNN.

We are back with Dan Henninger, Allysia Finley and James Freeman.

James, what do you make to have law here, antitrust case?

FREEMAN: It's stunning and we have been enjoying the new economy, this new era of the government pulling back from its arbitrary capricious constant interventions in the U.S. economy, and here's the biggest section. This is a very competitive market. Neither firm dominates. AT&T's Direct TV is about 25 percent of the video market. A lot smaller customer base than Netflix for example. And you look at the Turner cable channels and HBO, by Time Warner, I don't know how you see dominance here. Mr. Trump was calling CNN fake news, and now we say it's a bundle of channels we can't live without or something?


It's mindbogglingly at this point.

GIGOT: Dan, we go way back to antitrust policy, back to the AT&T break-up and the IBM case. This is stunning news to me. I'm really surprised at this.

HENNINGER: Yes, one of the interesting aspects of this is that the last time the Justice Department brought antitrust suit against a vertical integration, which is companies that are unrelated business --

GIGOT: Don't compete directly against one another.

HENNINGER: Right. It was 1977, and they lost that one. In the intervening years, people like, indeed, Justice Robert -- former Judge Robert Borke, developed a theory of antitrust that said most vertical integrations like this, few, in fact, produce efficiencies. There has been in real theory developed to replace it. With the Justice Department suing on this basis, you have to ask, what is the idea, what's the argument going to take in to a judge, which is who is going to decide this, and make against this merger?

GIGOT: I want to zero in, Allysia, on one of the points Trump made, which is this is too much power concentrated in too much place. Is that how you look at the marketplace for content -- distributed content over the media marketplace?

FINLEY: Look, the marketplace for content and distribution has never been more competitive.

GIGOT: Give us some examples.

FINLEY: For example, AT&T, Direct TV has 25 million customers. Netflix, 110 million. Amazon Prime, 90 million.

GIGOT: And they're getting into the content business in a big way.

GIGOT: They're producing dozens of original TV shows. Both Netflix, Apple is now pouring $1 billion in original content because original content is a cash cow.

GIGOT: Google is also getting in with its own --


FINLEY: Its own streaming product.

GIGOT: You have the cable markets, big giants like Comcast, which joined with NBC. Are you saying that AT&T if it joins with Time Warner could actually be more competitive with these giants?

FINLEY: I think that's exactly the goal. Is that this would allow it to actually monetize, better target ads to compete with Facebooks and Googles and reduce prices for customers.

HENNINGER: One of the things that Trump said on the campaign was, quote, "Deals like this are a threat to democracy."

GIGOT: What does that mean?

HENNINGER: That's a good question, what does that mean. There's idea of the threat of bigness here and I concede that the media companies have become very big, but there's a lot big media companies. But Trump seems to feel that the very idea of combinations is threatening to democracy. That's not a legal issue.

GIGOT: Do you feel there's a shortage of voices in the American political debate? I mean, I don't.

FREEMAN: No. And I think -- his voters, I think, have a distrust of big government and also big business.


GIGOT: They hate CNN.



GIGOT: The political left really hates big business. That's the problem here. You've got a populist politics on both left and right and why should that influence antitrust division. They should focus on the law?

FREEMAN: One would hope. It's particularly bizarre as you're trying to figure out what's happening here. A history really of being until this moment of being a rule-of-law small-government guy, so it's -- it's really hard to understand where this thinking comes from which, obviously, is way out of step from jurisprudence.

HENNINGER: Here's an irony. As Allysia was pointing out, one of the big players is Amazon Prime. They would be beneficiaries if this merger was busted up. Jeff Bezos and Amazon are one of Trump's primary enemies.


They would benefit.

GIGOT: All right, thank you all.

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


GIGOT: Time now for "Hits & Misses" of the week -- James?

FREEMAN: Paul, this is a miss to our secretary of the Treasury, Steven Mnuchin, who is making a mistake that homeowners make, which is he's taking in low-introductory rate on Treasury debt. Do short-term borrowing and missing the big opportunity. We have historically low rates. He should lock in our financing for the long-term. Issue long-term bonds. For whatever reason he doesn't want to do that. I hope it's not because they want the short-term political gain of showing a smaller deficit.

GIGOT: All right.


MARY KISSEL, EDITORIAL BOARD MEMBER: I want to give a hit to Department of Justice for investigating allegations that Harvard University discriminates against Asian-Americans in admission policies. Paul, you can call it the bigotry of high expectations given how well the students typically do. Let me give you one example here. Harvard's Asian admission rate is hovering 20 percent or so for many, many years. And you look at a state like California, which explicitly cannot consider race in admissions, U.C. schools, over 30 percent, Cal Tech more than 40 percent. I think it's a good cause here. Asian students matter.

GIGOT: Bill?

MCGURN: Paul, a hit to Taylor Swift. I confess, as father of three girls I know more Taylor Swift lyrics than is decent for a middle-aged man.


Early this year, Marie Claire magazine complained she wouldn't explain her decision to remain silent the 2016 presidential election. Looks like she knew what she was doing. She just released her album "Reputation," became the top-selling album of the year. This is a lady who knows what her business is and what it isn't.


GIGOT: All right.

Thank you all.

Remember, if you have your own hit or miss, be sure to tweet it to us, @JERonFNC.

That's it for this week's show. Thanks to my panel. Thanks to you for watching. I'm Paul Gigot. Hope to see you right here next week.

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