'Journal Editorial Report,' March 27, 2010

This is a rush transcript from "The Journal Editorial Report," March 27, 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," the president signs his health care overhaul into law. But Republicans say it's far from over. Is repeal and replace a viable strategy? Our panel breaks down the legal, economic and political fallout from Obama-care's first week.

Plus, a chilly reception for Israel's Benjamin Netanyahu at the White House as a standoff over Jewish settlement continues. Is the United States trying to topple a friendly government?

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

President Obama signed his health care overhaul into law this week, but if you thought that was the end of the debate, think again. Republicans are promising to repeal and replace the measure. States are mounting legal challenges to its constitutionality. And companies are already warning employees about higher health care costs.

Here to discuss all of the fallout, political, legal, and economic, Wall Street Journal columnist and deputy editor, Dan Henninger; senior editorial page writer, Joe Rago; and Washington columnist, Kim Strassel.

All right, Joe, The president signed it. Now this very big epic law is something we have to live it. What should we look for first? Let's deal with the economics and what's going to happen to the health care industry first.

JOE RAGO, SENIOR EDITORIAL PAGE WRITER: I think all of these taxes in the bill are going to start getting built into corporate planning and balance sheets.

GIGOT: A lot of these happen right away.

RAGO: Right away, within the next two years or so. So you had Verizon coming out this week and warning its employees that health costs are probably going to go up because of the change in the tax treatment of retiree drug benefits. You've got John Deere out there saying the same thing.

GIGOT: The write-off of $150 million against earnings, not in the future, but this year, that goes to the bottom line.

Caterpillar $100 million in write-offs. And this is because of a tax benefit they had for putting retirees — keeping retiree drug benefits suddenly vanished.

RAGO: That's right and, you know, this is just sort of one corner of this giant sprawling bill. So, I think you're going to see that across.

GIGOT: Dan, we were told if you liked your health care plan, you could keep it. It looks like that health care plan, even at Fortune 500 companies, are going to be changing right away.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, it looks like the truth is, you can try to keep it if you can.

(LAUGHTER)

Look, it's nearly a trillion dollar bill, and the big question all along was, how do you pay for it. They've enacted a wide array of taxes to pay for it. Taxes mean somebody is going to pay those taxes and a lot of them are the companies of the sort that Joe has been describing. It imposes a significant cost on them and, when that happens, you lay people off. There's going to be some unemployment all around the country.

GIGOT: Kim, do you think that — are there going to be actual layoffs? Are companies going to end up dumping some of their employee health care benefits on to the taxpayer over time?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, look, there's no question. Look at the examples you just mentioned of Caterpillar and John Deere. What this is, those companies were getting a subsidy from the government to keep retirees on their plan —

(CROSSTALK)

GIGOT: A modest tax subsidy. Basically, a lower tax rate.

STRASSEL: It was a moderate —

GIGOT: A lower tax rate.

STRASSEL: A lower tax rate and it was done specifically to encourage companies to keep these people, because if they went to the government, the government costs would be higher than just giving this modest tax benefit to the company.

Well, what the companies are now saying is they've taken that tax benefit away and so we're not going to be able to — we're either going to have to drop the retiree drug plans altogether or severely curtail them. Those people are going to government instead to get the health care bills. It's going to be more costly. And the plans they get from the government are going to be less generous than what they were getting in the private sector.

GIGOT: One of the things we should talk about here is what I would call — describe as the boiled-frog strategy that's imbedded in this bill. You put a frog into a pot and it's hot already, it jumps out and you can't kill the frog. You turn up the heat while it's in it and it dies without knowing what's happening to it. Now, this is a case where a lot of the spending in this bill is back-loaded and people won't see that right away. Is that right?

RAGO: That's right. You know, it's an entitlement that grows to about $200 billion in the final year, but none of that will start for — until well after the next presidential election.

GIGOT: So the president is going to be out there saying, hey, don't worry about it, nothing bad is happening. The Republican said the world would end. It's not ending.

Is that going to be a plausible argument of salesmanship, Dan?

HENNINGER: I don't think so. Pretty much because of what we've just been describing. Economics, corporate planning is a not a static exercise. People will start adjusting immediately for what's going to happen to them several years down the road. So I think we're going to start seeing insurance companies, the device manufacturers, the people who administer these health care plans — the Verizon case is very interesting. I mean, this is about their health care plan.

GIGOT: Right.

HENNINGER: They're already telling their employees that prices are going to — costs are going to rise. So I think some of the down side is actually going to hit before the so-called benefits arrive three or four years from now.

GIGOT: Kim, do you think that the Republican repeal and replace strategy, which I think they are all kind of coalescing around now, is that something that's going to gain some traction? Is that where you see this debate headed between now and the election?

STRASSEL: It is. And you know, originally, you just heard people saying repeal, repeal. There's a couple of problems with that. The big one, it isn't going to happen easily. Even if the Republicans do very well this fall, you need two-thirds of the Congress to override a presidential veto. And he'd veto a repeal.

The other problem is, if you just have repeal, you're not appealing to all of those Independents, et cetera, out there who do not like this bill, but they want to see something happen that does help with health care costs, et cetera. So repeal-and-replace is out there. It's both designed to suggest Republicans have ideas and it's also based on this idea that what you do is, you go into Congress, maybe you don't repeal the whole bill, but you offer legislation that would alter the worse parts of it. And you pressure Democrats to come with you and a new Congress on that.

GIGOT: Joe, let's talk about the legal challenges. Thirteen states have rallied behind the challenge coming out of Florida. There's another one, a different constitutional challenge coming out of Virginia. How serious are these as a threat to this bill?

RAGO: Well, some are more serious than others, but the core challenges to the individual mandate under Obamacare, for the first time, the government will be saying, you are required to be a lawful, abiding taxpayer to buy a private corporate product.

GIGOT: This is a certain kind of commerce you must engage in, you must buy this product. The challenge to that, a lot of people on the left say, well, it's structured as a tax. And we all know that taxes are certainly constitutional because the Sixteenth Amendment said you could impose a tax. But the people challenging this will say there's a difference between a mandate and a tax.

RAGO: Right, this is a mandate disguised as a tax. And really the way the legal left defends this is by saying, well, health care, health insurance are interstate commerce, and therefore justified under the commerce clause.

But if there's no limit, whatsoever to what the government can do under the commerce clause, then we really don't have a government of limited and enumerated powers anymore.

GIGOT: They can do anything at all to you. They can say you can do anything, except for the things in the Bill of Rights, which is a special broken core of protection, anything else, we can do anything at all, right?

HENNINGER: I think there's an interesting philosophical distinction here that's happening, which is, for the last 40 years, a lot of this stuff has been civil rights, with simply legal obligation. This has to do with economic rights and spending money in the states and I think this could be an intriguing new area for a challenge to the power.

GIGOT: All right, we're going to watch it carefully.

When we come back, a standoff over settlements. Israeli Prime Minister Benjamin Netanyahu gets the cold shoulder from President Obama during his Washington visit. Can the U.S. and Israel patch up their differences?

(COMMERCIAL BREAK)

GIGOT: Israeli Prime Minister Benjamin Netanyahu wrapped up his trip to Washington this week with a decidedly cool reception from President Obama. A closed-door meeting between the two leaders failed to resolve an ongoing dispute over new Jewish settlements in Jerusalem. Israel infuriated the administration earlier this month when, during a visit from Vice President Joe Biden, it announced plans to build 1,600 new homes there.

Foreign affairs columnist, Bret Stephens, joins us with more.

Bret, how do you read the big chill and silence coming from the White House?

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: Well, the Obama administration has finally alighted on the one Middle Eastern country which it's willing to come down hard on. And it turns out it's not Iran and it's not Syria —

GIGOT: Syria.

(LAUGHTER)

STEPHENS: It's the Israelis. And basically, there's two ways of thinking about the problems in the Middle East. Either you can say we have a problem with jihadists, extremist regimes supporting terror, building nuclear weapons, threatening their neighbors, or you think that the problem really comes down to Israel and its obstruction and it's supposedly refusal to allow a Palestinian state to come into existence. And it's clear what this administration position is, it's the latter.

GIGOT: The latter.

Well, there's the one school of thought around that says that the administration really wants to topple this Israeli government, maybe now throw Prime Minister Netanyahu out, but change the coalition, get rid of some of the right wing pro-settlement parties that are part of it and put in others. Do you believe that?

STEPHENS: I mean, it's somewhat amusing, because this is a coalition that includes the Labor Party as well. People forget that. That may be a calculation. and if the administration had sort of tested displeasure to Vice President Biden's visit when this announcement was made, and Biden denounced it, then, I think, Israelis would have seen this as Netanyahu missing up, a question of the incompetence of the Israeli government. But by ratcheting up the rhetoric going on for now two weeks, I think that Obama convinced a lot of Israelis, probably a majority of Israelis, that his strategy is not anti-Netanyahu, it's anti-Israel. And that's shoring up the prime minister's —

(CROSSTALK)

GIGOT: So this isn't working to degrade the support in Israel for Netanyahu. Quite the opposite, is that what you're saying?

STEPHENS: Yes, like the old saying it's worse than a crime, it's a mistake.

GIGOT: This reminds me a little bit of what Jim Baker, then secretary of state, and what President H.W. Bush did to the Shamir government in the early 1990s. And they ended up helping to topple that government and they would say it led to Rabin and the Camp David, under Bill Clinton, in an era of peace.

STEPHENS: Yes, but 18 years ago, you could plausibly make the argument that there was a Palestinian camp that was really ready to do a deal, that it made sense for Israel to withdraw from the territories. You can still make the argument that it makes sense for Israelis to withdraw from much of the West Bank. But it's hard to persuade most Israelis that you have a genuine Palestinian peace camp.

And the most troubling side of this aspect of the Obama administration's approach is all the pressures on Israel. There's no corresponding pressure on the Palestinian Authority to, for instance, end the incitement and calls for Israel's destruction.

GIGOT: But they would say, look, we need to buy some good will with the Arabs and that will help us down the road when we're dealing with Iran or what have you.

HENNINGER: I think that's precisely the point. I think what you're saying, in practice here, is a new liberal foreign policy idea, which is called turning enemies into friends. In that case, the United States has to be seen as a neutral player. And as a neutral player, it has to somehow be even-handed and earn the trust of the opposition, the so-called enemies, like Iran or the Palestinians. And then this is giving them an opportunity to beat up on a friend, to prove to our adversaries, that we can be even- handed. I don't understand the logic of that. But there's a stated policy to do that sort of thing.

(CROSSTALK)

STEPHENS: The corollary is you turn friends into enemies.

GIGOT: All right, Bret, thank you.

Still ahead, the lawsuit lobby. How trial attorneys bought the United States Senate, when we come back.

(COMMERCIAL BREAK)

GIGOT: Finally this week, the lawsuit lobby. You may have noticed that tort reform is missing from the newly enacted health care overhaul, about the only thing that's missing, and you have the trial bar to thank for it.

In a recent op-ed in the Wall Street Journal, James Copland, of the Manhattan Institute, writes that lawyers, as a group, have given more to federal candidates than any other industry or profession. And top congressional leaders, including Majority Leader Harry Reid and Majority Whip Dick Durbin, raised their biggest sums from trial attorneys.

I spoke with Jim Copland earlier about the scope of the plaintiff's bar's influence in the United States Senate.

(BEGIN VIDEOTAPE)

JAMES COPLAND, MANHATTAN INSTITUTE: It's shocking when you start looking at the amount of money plaintiff's attorneys have funneled into the leadership of the Senate.

GIGOT: What magnitudes are you talking about?

COPLAND: Well, if you look at overall contributions from the plaintiff's bar, over the last two decades, it's a billion dollars.

GIGOT: Really?

COPLAND: It's about $790 million in the last decade alone to congressional candidates.

GIGOT: Just to congressional candidates? That doesn't count presidential candidates?

COPLAND: That's congressional candidates. And when you start looking at the amount of money flowing into the federal campaigns from lawyers, it's more than any other industry or profession, not just over that whole time span, but every two-year political cycle.

GIGOT: Are you saying that their — the ability to gather money exceeds maybe even union contributions in terms of total dollars?

COPLAND: Well, they do it differently. Unions are sort of the shock troops and they run ads on TV. They organize get-out-the-vote efforts. What I'm talking about is the money that flows into the coffers of the politicians.

So, for instance, if you look at Harry Reid, majority leader of the Senate, Democrat from Nevada, four of his top seven campaign contributors over this electoral cycle are out-of-state plaintiff's law firms. Dick Durbin, his top two contributors are plaintiff's law firms. That's the majority whip, Democrat of Illinois. These are the guys running the Senate. So it's really not an exaggeration to say the plaintiff's bar is running the Senate.

GIGOT: And these lawyers are experts at bundling, which means they can take an individual, maybe his wife, maybe his two children, and each giving the maximum, and then they parlay to take that from all across the country, everybody in the law firm, everybody in, then, many, many law firms. And they can channel that into an individual candidate.

COPLAND: That's exactly right, Paul. It's the bundlers that have real power. This is a function of campaign finance reform, so-called reform. The Buckley v. Volao case that the Supreme Court decided in the 1970s allowed contribution limits to candidates. And they're fairly low. It's about $2,000 per campaign, $4,200 total, which is why politicians have to spend a lot of time raising money.

The plaintiff's bar is very good at this bundling game. We started look at John Edwards' campaign, it wasn't all the lawyers in America virtually that were giving him money. It was secretaries earning $25,000 a year giving maximum $2,000 contributions to John Edwards. They play this game well. General Electric, Goldman Sachs, they can't lean on their employees to give maximum contributions to their preferred candidates. The lawyers do it, and do it effectively.

GIGOT: But the lawyers would say, this is our constitutional right. What's wrong with that? Everybody else has the right to give. Why shouldn't we be able to do it? Just because we're effective, that means we're playing the game well.

COPLAND: On constitutional grounds, I agree with it. It is the First Amendment right of lawyers to play this game. The problem is with the rules that Congress establishes that limits these contributions in the first place.

GIGOT: From other people in particular. Well, for them, but also —

COPLAND: If we had much higher contribution limits, you'd have insurgent campaigns. When Eugene McCarthy ran against Lyndon Johnson in '68, he got about 10 or 15 people to give him a million dollars apiece. You can't do that now, so you can really only run an insurgent campaign if you're Ross Perot or New York Mayor Michael Bloomberg. If you're a billionaire and you can self-finance, you can run your own campaign, but you can't get 10 billionaires to help you out. That's a problem. If we just allowed more people to give money and we disclose the money from large givers, and had strong ethics rules to prevent corruption, that is a much better system that what we've got.

GIGOT: Is this recent Supreme Court decision, Citizens United, that said you can't — it said that corporations and unions can channel money now legally through to independent issue campaigns. Is that likely to make a difference and maybe offset some of this law, legal —

COPLAND: I think, on the margin, it will make some positive difference, particularly in state races, where the states have some strict campaign finance rules that are already in place. It's not going to make an enormous fundamental difference unfortunately. And the reason is, the big corporations and the unions already can get on television, as long as they set up political action committees.

GIGOT: But they don't like to do it directly because they don't want to have their name associated with it. And that's why they like to do it through independent groups.

COPLAND: Right. And so corporations will do it through the Chamber of Commerce or other independent groups.

GIGOT: Right.

COPLAND: The unions are less embarrassed about doing it directly, but the point is they already can do it now. It's really some small businesses, some entrepreneurs, it will open up their ability to speak more, so I think it will marginally offset this. But unfortunately, as long as we have the regime in place with these low-level limits, politicians are going to spend a lot of time raising money. And the people who can bundle and bring together lots of these $1,000, $2,000 donors are going to have disproportionate power, so that's really the point —

GIGOT: So the key, in your view, would be to lift the limits and let everybody give as much as they want as long as it's transparent and people can see who gave?

COPLAND: Exactly, at least see who gave for the big donors. I actually worry a little bit, and you've had some recent writings in the Journal from Bradley Smith, who also wrote with our City Journal on this issue. Some of these small donors are getting harassed based on their political contribution. But if you're a big donor, disclose it and let the press do its job and expose fraud and corruption.

GIGOT: And that might reduce the influence of real special interests.

COPLAND: I think so.

GIGOT: All right, James Copland, thanks for being here.

COPLAND: Thanks for having me.

(END VIDEOTAPE)

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

(COMMERCIAL BREAK)

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

Kim, first to you.

STRASSEL: This is a preemptive miss to the Obama administration. It is rumored that it's about to give a recess appointment to Craig Becker, to the National Labor Relations Board. You know, big labor has been on a tear for years to get Congress to pass legislation that would make it easier to organize. So far, they've got nothing. And this is why they love Mr. Becker. He's an SCIU lawyer who holds the radical view, you don't need Congress to change the law, that the NLRB can do it all by itself. And this is why there's bipartisan opposition to him in the Senate. The Senate blocked his confirmation last month and Senate Democrats voted against him. So if the administration does this, it's a poke in the eye to congressional authority, to its own party and yet another example that they will do anything to give payoffs to Mr. Obama's special interests.

GIGOT: All right, Kim.

Joe?

RAGO: Three out of ten U.S. kids are obese and Michelle Obama made this her cause as first lady. In a recent interview said, in no uncertain terms, that sin taxes on soda and junk food and whatever aren't a solution. So this is a hit to Michelle Obama for revealing the one new tax that the White House does not support.

GIGOT: All right, Joe, bravo.

And Bret?

STEPHENS: This is a hit for Sergey Brin, the co-founder of Google. Google this week decided it was pulling out of China after four unhappy years there. When Google first went into China, they realized they had to balance competing interests and they would have to submit to some Chinese censorship. But Brin, who grew up in the Soviet Union, realized that the censorship had gone too far and he took a stand on principle. And he deserves our congratulations.

GIGOT: I met with Brin this week, had a good chat. He's a very thoughtful guy. And they thought seriously about this.

All right, 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 right here next week.

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