Internet sales tax: Fair play or job killer?

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This is a rush transcript from "Journal Editorial Report," May 4, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," 100 days into his second term, is President Obama losing control of his agenda or is he right where he wants to be?

Plus, online shoppers beware. The Senate is preparing to push the renewed Internet sales tax. Brick-and-mortar retailers say it's only fair, but fair to whom?

And red lines in the sand. A look at the administration's shifting response to reports of chemical weapons use in Syria.

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

President Obama marked the 100th day of his second term this week. And by some measures, it's been a rocky start, coming off defeats on gun control and the spending sequester and facing a tough battle on immigration reform. The president was asked during a press conference Tuesday whether he still had the juice to get things done.


PRESIDENT BARACK OBAMA: Maybe I should just pack up and go home.

As Mark Twain said, rumors of my demise may be a little exaggerated at this point.

Right now, things are pretty dysfunctional up on Capitol Hill. Despite that, I'm actually confident that there are a range of things that we are going to be able to get done.


GIGOT: Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and Washington columnist, Kim Strassel.

So, Kim, you are down there in that hot house. Is this the new --



GIGOT: Is this the new consensus that President Obama is a lame duck?

STRASSEL: No. I don't think that that is consensus.


Look, I think that what the president is doing here is that he has put forward a very pure, unadulterated liberal vision of some of the policies he would like to see passed on higher taxes, on guns, maybe on immigration. I think he is going to push very hard and put pressure on Republicans to try to pass them. What he has not done is shown that he is willing to compromise much in the aiding of that passage. So I think what he is also doing is getting ready, if the Republicans do not go along with his wishes, he is going to tee them up yet again as obstructionists, saying they are the reasons that things are dysfunctional, try to drive some turnout to the 2014 election and win back the House and --


GIGOT: What you are saying here, implying is that he actually may be wants failure. That he basically is playing not to accomplish things in this Congress but to set up for the next Congress to defeat Republicans in the election.

STRASSEL: I think that you have to wonder if that's not what it is. Look at what he has put out there, Paul. When you come out and you say you want higher taxes, knowing that the Republicans have said that just is never going to happen.

GIGOT: Right.

STRASSEL: When you say you want gun control proposals that can't even pass your own Democratic Senate, you have got to question what he is actually up to. They seem to be playing the long game.

GIGOT: Does he still --

STRASSEL: Wait it out until 2014, get control, and then do what we want.

GIGOT: I know that you pretty much sympathize with Kim's view on this, but is that why you think is he losing juice?

DAN HENNINGER, COLUMNIST, DEPUTY EDITOR: Barack Obama's politics have always been a little difficult for people it to figure out. He spent the entire first term not being able to be able to agree with Republicans on the deficit, the debt talk, the grand bargain. Then he ran against them and he ran against the wealthiest.

GIGOT: Right.

HENNINGER: We now understand the entire first term of his presidency was basically a political operation to get him reelected because he was going around country pumping these speeches into his base and they voted for him. That's a first-term strategy, Paul. I don't think it's a second- term presidential strategy. The American people want to see some accomplishments. They want to see some substance. They put him back in the office.

Obama's problem, as he said in that clip, he thinks Capitol Hill is dysfunctional. He doesn't like the capitol. He doesn't like the Democrats up there. He won't work with them. We have been told that from both sides of the aisle. He doesn't spend any time with them.

GIGOT: Yet, the immigration strategy, James, may actually be working. That immigration strategy is --


FREEMAN: Yes, stay out of that.


Keep the president out of discussions and maybe something will get done.

The whole idea that he has lost his juice to get things done, this is status quo since the day he arrived in January '09. He hasn't lost any juice. He never had any in terms of getting things done with people who don't immediately already agree with him. You look at the stimulus, Obama- care in the first term, these are all done, often using strange legislative tactics to offset the fact that he could not persuade any Republicans to come along with him on his big spending plan.

GIGOT: Yet, if immigration passes, Dan, that would be considered, and rightly so, immigration reform, a historic achievement. That's been worked out now thanks to Marco Rubio on the Republican side and the Chuck Schumer on the Democrat side.

HENNINGER: And the ace in the hole is the economy strengths as well. The unemployment rate dropped a tenth of a percent this week.

His approval rating has been around 50 percent the length of his presidency, Paul. And as Kim suggests, he's hanging back, thinking he is going to capture 17 seats in the House to take control of the House. He is going to have to be a lot more popular than he is right now. He needs some wins one way or the other.

GIGOT: Kim, the other thing that second-term presidents often have is flexibility on foreign policy. They have fewer constraints. Congress doesn't have the authority it does on domestic issues. But President Obama has never really wanted to have an aggressive foreign policy agenda. So he doesn't have that kind of flexibility that you saw with Reagan, for example, or with Bill Clinton.

STRASSEL: No, and it is as you say, largely self-imposed. I think there were some people in the run up to the election looked what the did he in terms of troops in Afghanistan and some of the other decisions and thought maybe this was simply about keeping things calm in the run up to the election. But I think we have seen in particular after the election, his divisions on Syria, as you said, this is not a president who wants to have a robust or big or bold foreign policy. That's not going to win him any marks out there either.

GIGOT: Are we going to see a big budget deal, Dan, do you think before this is over, the grand bargain. The budget issues are an aside now but they're very much going to come back here in a couple of months.

HENNINGER: Yes. The other thing that's going to come back is the debt ceiling fight. If the Republicans fall on their swords saying they will not raise the debt ceiling, then I think that pitches forward into his scenario of blaming the inability for Washington function on the Republicans. It's going to be a long hot summer.

GIGOT: Yes. I don't think he is a lame duck either, James. Events can help out a president because he still has the opportunity for leadership if he wants to take it.

All right. When we come back, Internet shoppers beware. You may soon be paying sales tax on those online purchases. Supporters of the Senate bill say it's necessary to level the playing field. But is it a matter of fairness or a tax grab to soak small business?


GIGOT: Well, if you are one of the million of Americans who shop online to save on taxes, those days may soon be coming to an end. The Senate is set to vote next week on a so-called Marketplace Fairness Act which would allow states to impose sales tax on Internet purchases. Supporters, including big-box stores like Walmart, Best Buy and Target say it will level the playing field between online businesses and brick-and- mortar stores.

But our own James Freeman says the bill is anything but fair.

First of all, why is this happening now? They've wanted to do this for 20 years.

FREEMAN: I think Republicans feel bad that they can't dole out a lot of spending the way Democrats like to do when they run the Congress. So there is some steps that they want to offer something to their state and local governments who come to them asking for favors. And this is a big new way to collect taxes.

GIGOT: This is happening now in large part because Republicans have switched? The anti-tax Republicans of legend are now saying we want a tax at the state level?

FREEMAN: Some of them have in the Senate, not so much in the House yet. But even in the Senate, there is a question of how many votes this is going to end up getting at the end of the day because I think the more people look at it -- and it hasn't gotten as much attention as it should -- the risk reward is all wrong. You are talking about increasing state and local government tax collections by maybe 1 percent. And the down side --


GIGOT: That's all this would add?

FREEMAN: Yes. You're talking $20 to $25 billion a year. States spend $2 trillion. On the other hand, 9,600 taxing jurisdictions in the United States -- states, cities. If small retailers, anyone making over a million dollars in revenue have to answer to all of those tax collectors, it could be a nightmare.

I think -- you asked earlier, why is it moving now. Part of the argument is that software makes it easy --

GIGOT: Well, that's the argument --


FREEMAN: -- for everyone to know what all these taxing authorities owe.

GIGOT: They say that 9,600 figure is a scare figure because, in fact, we -- the bill stipulate that each retailer will only have to deal with one tax auditor and one taxing authority. That software -- you buy the software off the rack. It solves it all for you that.

FREEMAN: OK, if it works exactly as they plan, that means potentially 50 audits a year on a business, having to deal with every state. Now if doesn't work the way it claims, and you might get hassled by thousands of taxing jurisdictions.


GIGOT: Franklin County in Ohio, and you are living in Nevada.

FREEMAN: The Tennessee Department of Revenue, the city of San Francisco bothering you for money. The author of the bill, his office has been reluctant to answer --

GIGOT: Mike Anthony, of Wyoming, a Republican Senator.

FREEMAN: Mike Anthony. The question we put to them was, can the small business basically ignore letters from those 9,600 governments if they come asking for more tax collections, and we have had difficulty getting a straight answer.

GIGOT: Kim, what about this argument about fairness that the brick- and-mortar folks use? And, look, they may have an argument. If I have got to pay 8 percent, 10 percent more per good, I have got to charge more per item. These guys out of state don't. What's wrong with that argument?

STRASSEL: Well, there is a fairness issue, Paul. It's just exactly opposite of what they said. Look at traditional brick-and-mortar stores now. If you live in Massachusetts, which does have a sales tax, and you decide to drive across the state lines to New Hampshire, which does not, the stores that you are purchasing your products from, the Targets, the grocery stores, all these things, they are not asking to see your driver's license. They are not obligated to collect sales tax on behalf of Massachusetts and send it back to them. That is, in fact, what we are now asking online retailers to do instead. So there is going to be a disparity in terms of what people are obligated to do. That is actually the big problem.

GIGOT: Dan, what do you think about Republicans doing the switch-a- roo?

HENNINGER: I think it's dangerous. It's tax policy and very difficult. I think the Republicans are getting put in a position they probably don't want to be in.

What is the point of all these sales taxes? The sales taxes support public activities out there in these 9600 jurisdictions. Well, most of these 9600 jurisdictions are overcommitted. Stockton, California, has just declared bankruptcy because of its pension. Stockton has a sales tax of close to 9 percent in southern California. I think Republicans --


GIGOT: -- get your sales on --


HENNINGER: Yes, that's for sure. That's basically incentivizing taxes to rise across the board because that's what they are used for.

GIGOT: James, what about this exemption bill? It's a million dollars on small businesses. Is that big enough? I mean, that's going to exclude an awful lot of mom-and-pop businesses.

FREEMAN: It's interesting. I don't think this is going to pass the House. Let's say it moves along and politicians want to do some kind of compromise, I think most members of Congress understand one million is too low if you are trying to protect small businesses from all of these tax collectors.

But what I'm told is the big retailers, the Wal-marts and the Targets really don't want competition anywhere above that, that they are very focused on $-million-dollar level. So a compromise might be difficult here, and that's good because the plan should die.

GIGOT: The big guys like sticking it to the little guy. Oldest story --

FREEMAN: Well, and big government.

GIGOT: -- in history.

All right. Still ahead, the administration says it's rethinking its position on arming the Syrian rebels as criticism grows over its response to reported chemical weapons used by the Assad regime. A closer look at Obama's evolving Syria strategy when we come back.



OBAMA: What we now have is evidence that chemical weapons have been used inside of Syria but we don't know how they were used, when they were used, who used them. We don't have a chain of custody that establishes what exactly happened.


GIGOT: President Obama Tuesday, saying his administration needs more time to gather the facts before acting on the Assad regime's reported use of saran gas against the Syria opposition, something he has previously said would cross a red line. So has that line moved?

Let's ask Wall Street Journal foreign affairs columnist, Bret Stephens; and editorial board member, Matt Kaminski.

So, Matt, interpret the president's remarks here. Is he looking to actually act now or is he looking to delay having to act?

MATT KAMINSKI, EDITORIAL BOARD MEMBER: The chain of evidence that he set out will be necessary for us to do anything really dramatic --


GIGOT: It will make it hard to do?

KAMINSKI: It's very hard. He has obviously said we have to know who did it first, how it was done. It's actually hard enough to establish in a court of law when you are dealing with a burglary, much less a war. We don't have access. So I don't think he is -- I think he has definitely moved that line. He has moved this line particularly throughout -- initially, remember the red line was if they even move the chemical weapons around Syria, which they did last year, and we didn't say they crossed any red line.

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST: But it's worse than that, because he is also saying we need a U.N. investigation. So, apparently, we have this huge intelligence apparatus -- the Israelis have an intelligence apparatus saying the same thing, the French, the British, but we need the U.N., we need inspectors from Belarus, Sudan, Zimbabwe, and who knows where else to tell us whether the Assad regime is using these weapons.

GIGOT: Reportedly, the evidence that we have comes from victims that there was evidence taken from the victims who had the --


STEPHENS: Right. Because victims of chemical attacks display certain kinds of symptoms. We also have Syrian generals who have defected who have said on the record they were ordered to use saran gas. There aren't that many people using this type -- these types of chemicals in the region. So you can't insist on courtroom levels of evidence when you are dealing with a country in the midst of a civil war where chemical weapons increasingly on the loose and could easily get in the hands of Hezbollah or terrorist organizations or the Iranians and so on. That's the issue.

GIGOT: Presidents who issue red lines and then don't honor them tend not to be believed the next time, Dan?

HENNINGER: Yes, the word is "credibility." The big problem, Paul, is that this president and the -- and America's credibility is eroding in that region. We have been having this conversation for a year. The window is closing. The situation is getting worse. Jihadis have joined the opposition. As Bret says, Hezbollah is coming down from Lebanon to help Assad. And, the Iranians have been flying into Syria with both arms and people to help him as well. So it is really a tough situation now.

If Assad wins and the United States is seen as having done nothing, everybody in there is going to start cutting deals to survive. The Saudis, Qataris, Jordanians, the Turks and Iran will emerge the winner. That will be a situation we don't want.

STEPHENS: We are also giving Assad incentive to continue to use these. The more dispersed the weapons are, the harder they would be to secure, the more people he can kill, more enemies he can kill, and the more easily he can deter outsiders, like the U.S., from coming in. Because are we really going want to send troops into a country where chemical weapons are being used?

GIGOT: There are reports right now -- and Chuck Hagel, the defense secretary, said it this week -- that the administration is reconsidering its earlier decision not to arm the rebels. They are now considering arming some of the rebels.

KAMINSKI: They are doing something. They --

GIGOT: Non-lethal.

KAMINSKI: are giving non-lethal aid. They're the leading humanitarian aid giver in the region. The problem is we're always behind the curve here, at least two or three steps behind. If we had done some of these things earlier on two years ago, the cost of intervention would have been much lower and the cost of fixing Syria would have been much easier to do. Now that the war is a full-out civil war with over 70,000 dead, it is much harder for the U.S. to come in and try and either arm the rebels and shape the outcome.

GIGOT: The argument is that the rebels now are led by the most powerful group, which is an Al Qaeda affiliate. If we help the rebels, we will just be helping Al Qaeda take over Syria. What's your response to that?

KAMINSKI: That is not true. I think the head of the Free Syrian Army, the guy General Edris (ph), who visited last year, is someone that people seem to trust --


GIGOT: These are the so-called moderate rebels?

KAMINSKI: Well, pragmatic, became more so secular, and the ones who do need western help, so they do try to give assurances. But if we do want to pick our guys we have to be in there with money and weapons, and possibly establishing no-fly zone preventing Assad from bombing civilians.


STEPHENS: Look, our number-one interest is to secure these chemical weapons. We just had a bombing attack basically using fireworks and pressure cookers in Boston. Now, imagine what happens when you are in a crowded event in New York or Boston or Chicago and someone starts puncturing containers of saran gas. That is the danger.

GIGOT: You think that's a real danger that that could get here?

STEPHENS: There are enormous stockpiles of chemical weapons. We are going all over Africa trying to secure these so-called man pads, these anti-aircraft missiles that worry us because they might take down a jet liner. Imagine chemical weapons all throughout the Middle East.

GIGOT: All right, Bret.

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


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

Dan, first to you.

HENNINGER: Well, Senate majority leader, Harry Reid, said this week that he agrees with Max Baucus that if we don't implement ObamaCare, probably it is going to be a train wreck. The answer to why we can avoid the train wreck is spend a lot more money, which he claims the Republicans didn't appropriate. Personally, I have this vision of ObamaCare -- it's like a balloon in a parade being pumped up with more and more hydrogen until it explodes. And Harry Reid is going to be standing under it.

GIGOT: Didn't these guys write the law? Oh, they did.

All right, Matt?

KAMINSKI: Here's a hit to congressional Republicans who put out a report on Benghazi attacks last September on the embassy. It's a very thankless task but there's still a series of unanswered questions, and we haven't brought anyone to justice for that attack. This week, the FBI finally, eight months later, put out photos of three suspects, and the Department of State is saying they are going to review their investigation.

GIGOT: All right.


STEPHENS: This is a hit to a man named Allan Shaw, a chemist and CEO who, about five or six years ago, really was the leading group shilling for ethanol for turning things like wood chips and switch grass into fuel you could put in your car. Well, he says it doesn't work. The economics of it are just impossible. He is getting out of what he calls this nightmare. I think Allan, Mr. Shaw is leading the way for -- it reminds me of Forrest Gump, when Forest stops running and the guys behind him say, what are we going to do now, man?


Well, they will find their own way.

GIGOT: All right, Bret, thanks.

And remember, if you have your own "Hit or Miss," please send it to us at And follow us on Twitter on JERatFNC.

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

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