This is a rush transcript from "Journal Editorial Report," January 26, 2013. 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 green agenda. He's promised to make climate change a priority in his second term. Why it may end up costing you big.

Plus, Phil Mickelson, pro golfer, says that high taxes may drive him out of California. We've got some suggests on what states he should consider if he moves.

And Hillary Clinton's swan song. A look at her performance this week on Capitol Hill and her legacy as she prepares to leave Washington, at least for now.


PRESIDENT BARACK OBAMA: We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations.



GIGOT: Welcome to "The Journal Editorial Report." I'm Paul Gigot.

That was President Obama in his inaugural address Monday, promising to make global warming a top priority in a second term. It's an issue that is sure to bring some fierce policy showdowns. The first of which may come under the Keystone XL Oil Pipeline which has been under review since 2008. Governor Dave Heineman approved a revised route for the pipeline through Nebraska this week, the final hurdle to the project at the state level. And 53 senators, including nine Democrats, sent a letter to the White House on Wednesday urging President Obama to expedite its approval.

And joining the panel this week, Wall Street Journal assistant editorial page editor, James Freeman; senior economics writer, Steve Moore; and Washington columnist, Kim Strassel.

So, Kim, where did that come from?


I don't remember the climate change being something that the president talked a lot about in the campaign, if at all.


GIGOT: It's sort of the stealth issue.


GIGOT: And he didn't even wait for the State of the Union. It's in the inaugural address. So, what's going on here politically?

STRASSEL: Well, I think some of us did think it was coming. Remember, this was a high priority of his back in 2008 when he campaigned. But they got beat up on it. They lost that fight in 2009, they decided to put it aside and not talk about it in the election. And here we are, back with his promise.

And what was more interesting, too, is not only did he make that promise, but you had somebody like Barbara Boxer, who is the Senator from California, big climate person, she gave some details, too, about how they intend to pursue this. Namely, they're going to go through the EPA to do a big carbon regulation program, and they are also thinking of putting in place a carbon tax.

GIGOT: Uh, oh. Well, we'll talk a little about that.

Steve, so is this really a regulatory agenda? I don't think that Cap and Trade, the old program, can pass even a Democratic Senate. It couldn't the first time when they controlled everything.

STEVE MOORE, SENIOR ECONOMICS WRITER: Yes, there's a reason that President Obama almost never mentioned the words "climate change" and "Cap and Trade" during the campaign, Paul, because they're political losers. They're big tax increases on workers, on union workers, on manufacturing workers. And so, the Democrats have avoided that issue. Now that they've won this election, they've sort of sprung it on people.

I still don't believe the votes are there in the United States Senate or the House to pass anything like either the carbon tax, or, by the way, the Democrats are talking maybe an energy tax, like a gasoline tax. There's no political support there. And that's why I think Kim is right. If they're going to do this, it's going to have to be through the regulatory angle of basically trying to outlaw carbon in that way, yes.


But then, James, why mention it so prominently. Or was this sort after bait and switch for the environmentalists? You mention it rhetorically, and you say, oh, boy, I'm really behind you. And then, in policy terms, you don't given them any.

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Right. Well, there may be some bait and switch. But I think this is the key. If he doesn't need to get anything through the Congress, as the "Potomac Watch" column in Friday's Journal --

GIGOT: That's written by Kim Strassel.

FREEMAN: -- pointed out so well, there's a lot of regulatory authority they think they have. A court decision a few years empowers them to regulate carbon. They think they're off to the races here. So this suggests to me that maybe the play is, with all of the business community expecting an approval of the Keystone Pipeline, the president might approve the pipeline, but then really ratchet down on the use of the oil going through that pipeline. And I think he might be able to say to environmentalists --

GIGOT: But how does he do that? Because they're not going to build this thing with -- I don't think there's a lot of oil that's going to through it.

FREEMAN: Well, certainly, the people that want that oil are expecting a big market. But if he's -- at the end of that pipeline, once it goes out into the economy, if the president is severely restricting how it's used, how it's used in transportation and in manufacturing, as Senator Boxer has said, I think he could say to environmentalist, look, the end user is going to get hit hard here. We're going to reduce this energy consumption. And maybe he goes ahead and provides those construction jobs with the pipeline.

GIGOT: Is that a --


MOORE: Can I make a related point here, Paul, about the pipeline and carbon change? Because it's interesting if you really care about global warming and you want to reduce carbon emission, there is no question the most important thing America can do, would be to transition towards natural gas, which we have a huge abundance of. It is cheap. It is abundant in the United States. And it does not emit very many carbons into the atmosphere. And yet, the left is against that, too. And we need pipelines to get the natural gas to the markets.

GIGOT: That's because the natural gas would take the place of coal, which is a much bigger --

MOORE: Right. Exactly.

GIGOT: -- carbon, especially in terms of utilities and electricity.

Kim, is that the play, what James Freeman was talking about, the trade of maybe get Keystone going, allow fracking to go ahead, but impose a carbon tax here, which would be potentially a huge revenue raiser? But if you start small on it, you still raise a lot of money but, over time, you can ratchet that thing up.

STRASSEL: You have to assume that's the win-win play for the president. Because, look, what he's got to balance here is making his environmental left happy, which he did by putting out the comment that they're going to address the climate threat, but he's also sitting on top of this energy renaissance in the country, this huge new boom in natural gas and oil. And we saw in the election that he wanted to take some credit for at that.

So, one way you could potentially do both of these things, is do you green-light some of the natural gas projects and oil projects, and on the other end, you do try it get an energy tax or something that makes it look as though you are ratcheting down on its use, and you get the bonus of a huge new revenue stream for the country.

GIGOT: Steve, briefly --


STRASSEL: If you're a democrat.

GIGOT: -- are Republicans going to go along with this? Are they going to buy an energy tax if the president pushes it?

MOORE: Oh, hell, no.


I don't think it gets any Republican votes. And, look, you know, the president talks -- he's going it talk in the State of the Union about we need more investment, we need more infrastructure in this country. Here we've got an infrastructure project. By the way, Paul, it doesn't cost the government virtually a dime. It's all private-sector money.

GIGOT: Right.

MOORE: -- and yet, they're upholding it. It makes no sense.

GIGOT: All right. We sure hope he approves it.


Still ahead, pro golfer, Phil Mickelson, under fire after suggesting he may leave California for a more tax-friendly local. A look at eight states he might want to consider, when we come back.


GIGOT: Pro golfer, Phil Mickelson, caused a stir last weekend for suggesting he may leave his home state of California in search of friendlier tax climes. Voters there, you may recall, passed Proposition 30 in November, making California the state with the highest top marginal tax rate in the country. Add that to what Mickelson will pay Uncle Sam after the fiscal cliff tax increase and it's not hard to see why he may be shopping for a new place to live.

James Freeman, Steve Moore and Kim Strassel are back with a look at the states he may want to consider.

So, Phil Mickelson did the big mea culpa, and said, I shouldn't get involved in tax talks.


GIGOT: It probably hurt his brand somehow. But where should he move if he and the family decide to pack up and move?


FREEMAN: Well, he's got some exciting options.


And he may have even more options as more states consider getting rid of their income taxes. But the place for golfers, for athletes in general, is Florida. It has no income tax. Obviously, golf weather almost the entire year. Sometimes the whole year depending on where you live in Florida.


GIGOT: No state tax.

FREEMAN: And A-Rod has put his house on the market. So if Phil is shopping --


GIGOT: Alex Rodriguez.

FREEMAN: Yes, the New York Yankees --

GIGOT: For some of us, in Green Bay, there's another A-Rod who is more important.

FREEMAN: Oh, right. Right.



FREEMAN: And anyway, Texas, Nevada. If he wants to go to Vegas, a lot of golf courses there. So, I think this is -- this is bigger than Phil Mickelson. It's the problem California is having. They've now kicked the rate up to 13.3 percent. A lot of people are looking elsewhere.

GIGOT: Steve, there's a lot of action, tax action in the states, tax reform action, that's pretty interesting. A lot of reform governors out there trying to even eliminate the income tax -- Louisiana, Kansas, Nebraska. Tell us what's going on and why?

MOORE: Yes, it's a great story. And, by the way, James, 63 is the great golf score, but it ain't so good as a tax rate.


And that's what Phil Mickelson is facing.

So, Paul, the big story here is that you have a lot of these states that have been looking at what's happening in places like Texas and in places like Tennessee. I'm in Nashville, Tennessee. Today, it's Boomtown, USA. These are states that have no income tax. And the evidence is just irrefutable that businesses and capital and families are moving out of those high-tax states, like where you live in New York, and moving to these no-tax states. So you've got a number of places -- like North Carolina, like Arkansas, like Kansas and Oklahoma, and the south and southwest -- that say, you know, we don't want to be like California. We want to be like Texas.

GIGOT: Right.

MOORE: And they're looking at eliminating their income tax.

GIGOT: OK, Steve, but what about the revenue losses? That will be the big complaint.

MOORE: Right.

GIGOT: If you give that up, you're going to lose revenue. How do you make it up?

MOORE: That's a great question. A lot of these states say, we'll expand and maybe increase sales tax. That's been a political hazardous. It hasn't worked well in places that tried that.

But I want to toss out another idea that some states are looking at. Why not use this bonanza of money from the energy revolution that we talked about a little bit earlier, use some of that money in terms of severance taxes that you can raise and the royalties, and use that to replace the income tax. That's how Wyoming and Alaska got rid of their income tax.

GIGOT: And you say the swap from income to sales tax doesn't work very well. You mean politically.

MOORE: Politically.

GIGOT: Right.

MOORE: Politically, yes.

GIGOT: Economically, it makes a lot of sense, doesn't it?


GIGOT: -- because you're taxing consumption instead of investment and work and effort.

MOORE: Yes, thank you for clarifying that. It's an important point. What I was saying is sometimes it's a hard sell to the people, saying, when you go to the 7-eleven or to the grocery store, you might have to pay a little higher tax. The problem is, people say, well, maybe I'll take the devil I know, the income tax, over the devil I don't know, these higher sales taxes.

GIGOT: Meanwhile, Kim, there's a movement in the opposite direction in the states that are controlled by Democrats.


Where you see now, Massachusetts Governor Deval Patrick proposing a big tax increase. Something similar going on in Minnesota. And that follows, of course, California, Illinois, New York, Maryland, Virginia under Mark Warner, Connecticut, and a lot of these so-called blue states, which have all raised taxes substantially in the last couple of years.

STRASSEL: The remarkable thing about that, Paul, the evidence is there about what a disastrous policy this is.

You know, you have the example of Phil Mickelson saying that he would like to look at a new place to live. And we actually have the numbers showing that this is exactly what happens when you do raise.


STRASSEL: You know, Maryland raised its taxes on millionaires, they called it. And you know, the next tax year, most of those higher income job creators in the state had fled for others domains. Probably some of the states we're talking about that are looking to, in fact, decrease income taxes.

So it's the wrong direction. But these states feel as though they're under enormous budgetary pressures and that the way they're going to continue to keep spending is just to tax more.

GIGOT: Is this something that would give somebody like Louisiana Governor Bobby Jindal, who is sometimes mentioned as a presidential candidate, could really carry if he did decide to run?

FREEMAN: Absolutely. Absolutely. And it's exciting to see these reform governors out there, because the reformers of a couple of years ago, Chris Christie, in my beloved adopted home state of New Jersey --


-- for example, has really backed off the tax reform issue. The problem is New Jersey still has that high, almost 9 percent rate. It's not going to help him.

But I think to the extent that a Bobby Jindal comes in, he's proposing reforms on the tax side. Really could become a name in Republican primaries. As --

MOORE: It's almost --

FREEMAN: -- people like Christie kind of receded a little bit.

MOORE: It's almost like the red states, you know, these Republican states in the south, they're practicing Reaganomics, Paul, and the blue states are practicing Obamanomics, where they really believe these higher taxes and the more spending on transit and education are going to create jobs. And the great thing about America is we'll see. Now we have this experiment about which states will prosper. And I'm going to put my money on the south.

GIGOT: Well, and Massachusetts is also exploding health care costs.

MOORE: That's right.


That's right.

GIGOT: When we come back, Hillary Clinton's swan song as she prepares to leave Washington. A look at her final performance and her future in politics.



SECRETARY OF STATE HILLARY CLINTON: The fact is we have four dead Americans. Was it because of a protest or was it because of guys out for a walk one night who decided they'd go kill some Americans? What difference, at this point, does it make?


GIGOT: An Oscar-caliber performance from outgoing Secretary of State Hillary Clinton this week as she testified on Capitol Hill about the September 11th attack in Benghazi, Libya, that killed U.S. Ambassador Chris Stevens and three other Americans.

Wall Street Journal editorial board member, Matt Kaminski, watched it all. And he joins us now.

So, Matt, first, let's answer the secretary's question. What difference does it make who killed those Americans?

MATT KAMINSKI, EDITOR: Clearly, the question was, why were we misled in the first plan about who was responsible for the death of the U.S. ambassador and three others there? The first killing of a U.S. ambassador in several decades. And I think the fact that they mislead -- and they did mislead. They gave a story out there that was not the real story. That was --


GIGOT: Right. The story about the YouTube video.

But does it matter -- in addition to misleading, does it matter that this was now, we know, almost certainly an organized terrorist attack?

KAMINSKI: Of course, it does. That speaks to the fact that we have failed in Libya. Our policy in Libya after the fall has failed. We didn't help the government there really secure that country. We saw the proliferation of Islamist militias who were armed by countries in the gulf who came in --


GIGOT: Because we didn't want to play a role thee, we kind of subcontracted out --


KAMINSKI: Exactly. Because we don't want to be involved.

GIGOT: -- the UAE.

KAMINSKI: Right. And Qatar. We don't want to be involved. After the war, we stepped out. The same story in Mali. The same story obviously in Afghanistan. Now we're pulling out. And in Iraq, we've totally pulled out. So it's a question of accountability.

I mean, she did a very good job to give her credit -- give Secretary Clinton credit. She spent five hours not doing any major damage to her own political chances. But the question is still unanswered and should be answered.

GIGOT: One of those questions, why we have that light footprint and why we didn't anticipate that attack, and why the United States wanted to wash its hands of Libya.

KAMINSKI: Exactly. Those questions -- those other questions about, what did President Obama do that day? What options were being considered to try and help the compound in Benghazi and the CIA annex next door in the city? You know, why weren't the contingency plans in place to help Americans in case something happened in a virtual war zone?

GIGOT: Matt, I have the impression that most of the Republicans, with the exception of Ron Johnson and Marco Rubio, really weren't prepared for this hearing. They didn't dig hard. They didn't ask good questions. John McCain gave a speech. And --


GIGOT: -- he's got authority. And Rand Paul gave a speech. But nobody really dug in to answer those questions. And that's one of the reasons she emerged, I think, with -- unscathed.

KAMINSKI: Exactly. And the Democrats half the time just served, saying penance (ph) toward Hillary Clinton, looking toward 2016, when she'll probably run.

GIGOT: Well, no question about that. I think she will.

So that doesn't bode well at all, Kim, for the Chuck Hagel hearings going ahead. For example, Republicans talking they're going to give him a tough time as a nominee for defense secretary.

STRASSEL: No. And what they really failed to do here, Paul, was not just have a response or press her on these big things, move her off the talking points on the questions that you just asked, but also that bigger question about putting and placing Benghazi within the scope of a broader failure of foreign policy. And that's going to have to be what they're going to do if they're going to talk about Chuck Hagel, is highlight the Obama failure in this area. And talk about the fact that Chuck Hagel is going to be a "yes" man for that strategy. And so if they're not able to do that in a hearing like this, which they've been pressing for, for months, it does not bode well for them to be able to elevate this issue in Hagel hearings.

GIGOT: What about her overall tenure in state, Matt? Is there anything you can point to, I guess, you know, the fall of Qaddafi, although that's now taken a negative turn. There was an arms control deal with Russia that you were not enamored of, as I recall. But what --



GIGOT: Overall, what's her legacy?

KAMINSKI: She's one of the most-traveled secretaries of state. She was -- I mean, she did the public diplomacy part of her job to her credit well. She was a sort of a very famous figure who went to many countries. In terms of her influence on Obama policy, or much less any sort of achievements, it's impossible, at least to me, to point to anything. And what's more remarkable about those hearings was that she sounded very hawkish on America must lead in North Africa. We must fight the spreading Jihadism from Mali to Algeria to Libya.

GIGOT: You can't leave a vacuum, which will be filled by jihadists. But that's not the policy --

KAMINSKI: And that's exactly --


GIGOT: -- this administration has been following.

KAMINSKI: And she's still in it.


And she's supposed to be the sort of leading foreign policy figure in the administration.

GIGOT: That's a preview of 2016.


GIGOT: All right, 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.

Matt, first to you.

KAMINSKI: Paul, here's a hit it to British Prime Minister David Cameron, who, on Wednesday, gave a very noteworthy speech on the European Union. He said that Europe must reform. It must bring back its internal market and the free market to the core of what it does. And he will put membership in the European Union up to referendum after the next election. Europe needs Democratic legitimacy. It needs to be reconfirmed by the voters. And this is a smart, but risky move for Cameron.

GIGOT: All right.


FREEMAN: Another hit for Cameron. This is Cam Cameron.


He's not the British prime minister. He's with the former offense coordinator of the Baltimore Ravens. Got fired during the season, but he's been rooting for the team. And this week, he actually said it was a brilliant move firing him. Now, he's not saying he's a terrible coach. He's saying it shook up the team and helped them to play better. But in a world of super-charged sports egos, it's kind of refreshing to say, hey, brilliant. Now, I should say this is not applicable to media, news rooms.


I think it would not be a brilliant move to shake up your staff here.


I'm saying, in general.

GIGOT: That's all right, James.

FREEMAN: With his case.

GIGOT: You're our defensive coordinator. So don't worry about it.





STRASSEL: A hit to the news that so many Americans are finally being given a choice to not join a union. The evidence for that came with new Department of Labor Statistics showing union membership had again dropped. It's now at a post-World War II low. A lot of people fleeing were from states like Indiana and Wisconsin, which finally passed laws for the first time allowing people to negotiate on their own, and not have to pay union dues with which they don't agree. Freedom in any context is good, Paul, and it's nice to see it in the workplace, too.

GIGOT: All right, great. Thanks so much, Kim.

Although, we wish we could have had a triple Cameron on this, but --


-- we'll have to settle for that.




GIGOT: That's it for this week's show. 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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