Is Romney's lead the real deal?

This is a rush transcript from "Journal Editorial Report," October 27, 2012. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," with just 10 days left, the presidential candidates do the swing-state sprint.

Polls tighten amid a new narrative that Mitt Romney's momentum may not be real. Is it?

Plus, the president taking credit on the campaign trail for some positive economic indicators. But is the outlook really that rosy? And what will January's looming tax increases do to those signs of life?

And a measure on the ballot in Michigan could hand unions their biggest victory in years. Will Great Lakes voters make collective bargaining a constitutional right?

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

With less than two weeks to go, President Obama and Mitt Romney hit the campaign trail hard this week, stumping in the battleground states of Florida, Florida, Iowa, Ohio, Wisconsin, Colorado Nevada and Virginia.

Polls continue to show the race in a dead heat nationally, and too close to call in no fewer than 10 swing states. But the Obama campaign and its media allies are questioning whether Mitt Romney's recent momentum is real.

Joining the panel his week, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; editorial board member, Dorothy Rabinowitz; and Washington columnist, Kim Strassel.

Kim, why don't you wade into this debate and tell us just how real the Romney surge, which has now been going on for about two weeks, is.

KIM STRASSEL, WASHINGTON COLUMNIST: Look, Paul, in those weeks, what we've seen is one side increasing its advantage in both the national polls and the swing-state polls. That's Romney. We have seen money flowing into that side. That's Romney. We have seen him improve his performance among Independents and women.

GIGOT: Right.

STRASSEL: That's Romney's side. You can call it what you want, and the media contends it isn't momentum, but I bet the president's campaign is wishing they that that non-momentum.

GIGOT: So you --


STRASSEL: This is all on Romney's side at the moment.


DAN HENNINGER, COLUMNIST AND DEPUTY EDITOR: And to that point, yes, indeed the Obama campaign wishes it had some of that momentum because, I'll tell you what really going on here. I think the president is flatlining.

GIGOT: You think he's hit a ceiling?

HENNINGER: I think he hit a ceiling because for two reasons. His approval rating had hit a ceiling as far back as April. This president has been around 47 or 48 percent all through the year. There's no lift to the Obama presidency. And now that he and Romney have come together in both the national and these tight swing-state polls, you see no lift at all in the Obama campaign. The question is, where is it going to come from?

GIGOT: Here's the argument they make, James, which is basically, look, we're still ahead in Ohio and Wisconsin. This is the Obama campaign.

We're still ahead in what they call their fire wall. And even if you give Romney all the swing states that they think they're going to win -- Virginia, North Carolina, Florida -- that still only gets him to 248.

Throw in Colorado, 257 electoral votes. Needs 270 to win. So what about that fire wall argument?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Right. A couple of things about the firewall. One is you have to question, for example, is Obama really ahead in Ohio when everyone seems to acknowledge Romney's big advantage among Independents? This is true of a bunch of swing states.

There's a question about who is really ahead.

But the other issue is this is a well-known incumbent late in the race. He has probably persuaded most of the people he is going persuade and I think his campaign speeches are telling you that. It's a very fiercely partisan ideological message he is delivering as he's traveling to these swing states. He is not talking to Independents.

GIGOT: Let's get a clip of that. We want to give you an illustration of what James just pointed out.


PRESIDENT BARACK OBAMA: It turns out it's not a five-point plan Governor Romney's got. It's a one-point plan. Folks at the very top get to play by their own rules, pay a lower tax rates than you do, outsource more jobs, let Wall Street run wild. And if this plan sounds familiar, it's because we tried it. Governor Romney knows this. He knows his plan isn't any different than the policies that led to the Great Recession. So, in the final weeks of his election, he is counting on you forgetting what he stands for. He is hoping that you, too, will come down with a case of what we like to call Romnesia.


GIGOT: Romnesia. I've got it. You've got it. So what --


What do you think of that?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: Well, what are we looking at here? We have to acknowledge the president is a very angry man. That has been there evidently since that debate. All along --


GIGOT: But he's always -- Dorothy, here's the thing. He's always been such a cool customer. That's been his great appeal to so many people.

It helped him in 2008 against John McCain, who seemed so frenetic with the financial crisis. Obama, Mr. Cool, Mr. Laid Back, looks like he is calm in a crisis. You're saying this is a different Obama we're seeing?

RABINOWITZ: Yes. When the sun is shining, reality is different.


What happened is that we've heard the mantra for a long time now, "We always knew this would be a close race." Well, maybe his handlers did but Obama never did. You have to believe inside if you always thought that.

But now, came Denver, he began to understand, this is reality, he is in danger of losing, and everything that supported him, all of that sense of vast crowds -- imagine what happened yesterday in Colorado. If you took a look at Mitt's immense crowds, that evoked the same tremendous passion that Obama had, only it was Mitt Romney winning. So you have this enraged president. And it comes out he can't stop, just as Biden could not stop, you cannot stop behaving inappropriately.


HENNINGER: The president's campaign just put out a 20-page pamphlet, the "New Economic Patriotism."

GIGOT: That was a big part of this week. Basically saying, I do have an agenda, responding to the Romney criticism that he doesn't for the second term.

HENNINGER: Exactly. And senior Democrats have been saying that because Romney put out this substantive economic plan, the president actually has to begin defining his own. He goes on this stump, and does he talk about that? No. He does what we just saw on speech after speech.

I honestly think that Barack Obama harbors some deep personal animosity towards Mitt Romney. He can't stop doing that even as his advisers say go in another direction.

GIGOT: Kim, what's the strategy here that the Obama campaign is working?

STRASSEL: Well, it's what they have been doing all along. It's class warfare. It's fear. The argument has always been for Obama, yes, things are not necessarily as great as he would like them, but we're making progress, and trust me, the other guy will be much, much worse. So it's the argument of stick with the devil you know rather than the one you don't. And that's what you're going to be hearing in the swing states.

It's going to be playing off of certain fear and the economic anxiety that people still feel today, trying to make them worry about what would come with a Romney presidency.

GIGOT: Dorothy, what about the argument we hear from our friends on the left, this is -- Romney is now surging because it's moderate Mitt.

He's disavowed his past.

RABINOWITZ: Well, these are desperation tactics. As opposed to Obama, this is not tactics. He can't help it. He has been destabilized and he's making errors. But those people are out there. It's the last resort to say, it's not real. You have it with Nat Silver in The Times. You have everywhere now. And I think it will do no good. Facts are not going to be changing.

GIGOT: Moderate Mitt, James?

FREEMAN: No. I think what -- part of the success of the first debate, that big Romney victory, he finally, to the delight of conservatives and free-market fans, made an argument for economic freedom and talked about the difference between the real economy that Mitt Romney participated in and succeeded in, and the Solyndra economy of president where you fund favored enterprises.


All right, thank you all.

When we come back, President Obama revamps his stump speech, taking credit for some recent positive signs in the economy. But is our outlook really that rosy? Our panel takes a closer look, next.



OBAMA: After losing nine million jobs in the Great Recession, our businesses have now added more than five million new jobs over the past two and a half years. Manufacturing is at its highest level since the '90s.

Unemployment has fallen to its lowest level since I took office. Home values and home sales are rising.


OBAMA: Assembly lines are humming again.



GIGOT: That was President Obama this week in Davenport, Iowa, touting an economic turn-around he says is just getting started. But it wasn't all good news this week with the U.S. economy growing at a still sluggish 2 percent in the third quarter and weak corporate earnings leading to one of the biggest Dow selloffs of the year.

We're back with Dan Henninger and James Freeman. And also joining the panel, Wall Street Journal editorial board member, Mary Anastasia O'Grady; and senior economics writer, Steve Moore.

Steve, why don't you take apart that third-quarter --


-- growth number at 2 percent. We've got the big two in front of it, up from 1.3 in the second quarter. Happy days are here again?

STEPHEN MOORE, SENIOR ECONOMICS WRITER: Yes, hardly. The problem with the speech that President Barack Obama -- that segment you just showed

-- is nobody really believes that, Paul. And these new numbers on GDP really show that this is an economy that is still suffering from what I call chronic fatigue syndrome. It just isn't picking up the way a normal recovery would. And what we're seeing in the GDP numbers, we're also seeing this, Paul, in the jobs numbers. This is a recovery -- if we can use that word -- that's about half the pace of a normal recovery. And that's the reason you still have four million fewer workers today with jobs than you did in 2007. This is a really lousy recovery.

GIGOT: But, Mary, we're seeing some acceleration from the second quarters. No question. The fears of a recession seem, at least for now, to be put aside. So, 2 percent is not great but, on the other hand, it's something.

MARY ANASTASIA O'GRADY, EDITORIAL BOARD MEMBER: Well, it tells you something. That 2 percent makes you feel like spiking the football because the expectations at this point are so low.

But there are a lot of other signals that are coming that suggest that the 2 percent is not just some kind of short-term malaise. Looking forward, you have business investment that is very weak.

GIGOT: Very weak, yes.

O'GRADY: You have, for example, Mexican exports to the U.S. were stagnant for the last two months. And that tells you something about demand in the U.S. You do have some pickup in consumer confidence.


GIGOT: That's --


O'GRADY: But where is that coming from? It's coming from housing, where Ben Bernanke is shoveling all the money --


GIGOT: Chairman of the Federal Reserve.

O'GRADY: Right -- into the credit markets and he's creating money to try to keep interest rates low. That helps housing but that's not a real recovery.

GIGOT: So you think the buoyancy in consumer confidence -- there's no question consumer spending has held up really quite well. You think that's related to the artificial-stimulus easy money?

O'GRADY: Yes. And not just housing but also I think that's gone into the stock market and helped pump up the stock market, since the beginning of the year to the peak this year, up over 16 percent. That makes people feel good.

GIGOT: Homeowner, James Freeman, you love a housing recovery, I know.


But it seems finally to be here, doesn't it. I mean, the president was talking about it. You see housing prices in a lot markets flat to pumping up.

FREEMAN: By a less than consensus. There's some people out there saying maybe we're not out of the weeds on housing. But I think -- you mentioned the slow-growth economy. This is sort of the political question now, is whether the president can get people to accept a new normal of slower growth, less opportunity than we've had before.

GIGOT: And -- and --


FREEMAN: But I think the other story is the resiliency of American business. And this maybe a positive sign if we gate change in policy direction in Washington. They've really adapted well to this environment.

Very challenging the last few years. But the problem now is you need that top-line growth. You need increases in sales. They're not getting them.

So it's a question of how much more can they cut.

GIGOT: Yes. Corporations really stripped down they're expenses and that's how they squeezed profits out of the last couple of years. But as James says, if you can't grow revenue after a certain point, you can't grow profits.

HENNINGER: Well, that's right. Dow Chemical just announced they're going to lay off 2,400 people. That's a lot of layoffs. That's a lot of people getting fired. Banks are doing the same thing.

And I think Steve raised a good point -- recovery. The recession ended the middle of 2009. Three years later, are we still supposed to be talking about recovery? We should be talking about a normal economy. The post-war growth rate for the United States economy is about three percent or a little bit better. A point below that is not going to create an economy that creates jobs for all those people who've stopped looking for work.

And I think there really is a serious question now of whether Obama's new normal is in fact a two percent economy, given the fiscal policies that he has put in place and will be pursuing in a second term.


GIGOT: Yes, Steve.

MOORE: Dan, let me add something to that, something interesting in the report. We're just getting the preliminary glimpses and this is just a snapshot. But it appears -- and this also appeared in the jobs report.

Guess what sector of the economy is starting to pick up right now?



The government appears to be one of the fastest-growing sectors of the economy right now. That's not where I think Americans want to see the growth.

One other quick point. Paul, over the last two years, the sector of the economy created the most jobs has been the oil and gas industry, the very industry that Barack Obama has been trying to hold back.

GIGOT: Now he is saying I'm all in favor of that.


I'm a big backer of that, which, if that happened in a second term, would be a good thing.

O'GRADY: Well, if we have a bubble in energy prices, you know, that great job creator might not be there.

GIGOT: Although natural gas is no bubble because the supply is so enormous. But take your point on gasoline otherwise.

Well, President Obama may be touting an economic turn-around, but will whatever progress we have made come to a halt in January? With that so- called tax cliff looming, Americans are set to face a tougher 2013.


GIGOT: Well, President Obama may be touting economic progress in his push for re-election but he's making no mention of what else comes with that second term -- a whopping $500 billion in tax increases. Just part of what's in store for January if the president's policies take us over the so-called fiscal cliff.

So, James, really, one of the biggest tax increases since 1980 facing us.


GIGOT: If -- under current law, nothing is done -- Why don't you -- we have a list of some of these tax increases. Why don't you take us --

FREEMAN: Yes, and I just want to --


GIGOT: The lowlights.

FREEMAN: Yes, the lowlights. You see the expiration of the Bush cuts. This is a lot of the --

GIGOT: Bush rates.

FREEMAN: -- taxes. These are the personal income tax brackets which are now going to pop up again, taxes on investment, a lot of the Obama-care taxes, $22 billion, starts this year. That includes the new tax on investment there.

GIGOT: 3.8 percent on people who make above $200,000.


GIGOT: And medical devices, one of the most -- a real growth industry.

FREEMAN: Yes, I mean, that's one of those, you can't figure out how that became law, but it did and we have to live with it. I want to emphasize for people that I know we get used to talking Washington has these 10-year plans and a lot of this money won't happen -- no, this is in 2013, $500 billion. You're talking about a tax increase of over 3 percent of GDP. So this is a massive blow to the economy that is going to happen unless Congress acts or we get a new president with a new direction.

GIGOT: Steve, you talked to a lot of people in the business community. How are they reacting to this prospect? Is this affecting the chance that we could go over this tax? Is it affecting their investment decisions?

MOORE: No question about it. Fear and trepidation. Really, the two tax increases that have troubled me the most as an economist, Paul, are raising the dividend tax. And by the way, tripling the dividend tax, a pretty bad idea. And the capital gains tax would go from 15 to 24 percent a 60 percent increase. Now what kind of taxes are those? Those are direct tacks on business investment. We just talked about how businesses are retracting in terms of investment. I can't think of a worse thing to do to the economy right now than raise those taxes on business investment because that's really lagging in the economy. Saving and investment are the building blocks of the economy.

It's just hard to see, Paul, how the economy is going to grow at all much faster than 2 percent with that big tax sledge hammer in January.

GIGOT: But here's how I think the president would respond. Say, look, those taxes that Steve's talking about, those are on rich people.

They can tolerate it. No big deal. And if I get in, I'll work -- if I get a second term, I will sit down with Republicans and I'll eliminate the tax increases on people under $200,000 a year. And those are the real drivers of the economy because they spend money. So as long as we take that portion of the tax increase off the table, the other tax increases, no sweat. Will not hurt the economy.

O'GRADY: You just described Barack Obama's view of the economy. But



GIGOT: Yes. I think I did it fairly, too.


O'GRADY: Yes. But one of the big problems is the people that are these so-called rich people are people who use their excess capital to employ other people. So it will impact the job creation in the country.

But the other thing that seems like he really doesn't understand is that, first of all, $200,000, an individual earning $200,000 or a couple earning $250,000, is not -- whenever he talks about the millionaires and billionaires, then he just sort of groups them in with --


GIGOT: Forgets that it's only --

O'GRADY: Yes. That they're --


GIGOT: -- two earning couples in a lot of high-cost states. They certainly don't feel rich.

O'GRADY: That's the middle class family. And a lot of people own stocks in their pension accounts, so those people are very middle class people. They're going to get hit with these taxes.

GIGOT: The important point to stress, Dan, is unless Congress acts and the president signs it, whether the president is Mitt Romney or Barack Obama, these tax increases are going to take place. So something has to give or we all jump off that cliff together.

HENNINGER: Not only do we all jump off -- I mean, it's interesting the way we talk about this as the -- as though it was one country. It's

$500 billion of capital being taken out of the country and sent to the federal government's budget. The Tax Foundation has taken a look at the effect this is going to have on the states, and the wealthiest, biggest producing states, California, New York, Texas and Florida, are going to be the biggest revenue losers because of that money being taken from them and sent to Washington. And you have a state like California where the governor is trying to engineer a tax increase on top of that. How this cannot have a depressive effect on the economy is hard to see.

O'GRADY: I think we also know the super wealthy know how to work the tax system. So unless there's fundamental tax reform that gets rid of a lot of the loopholes and tax advantages that someone who is very wealthy can use, you're not going to collect those revenues. You're going to have more of the same with basically higher income class people getting hit.

GIGOT: Briefly, James, which of those tax increases won't take place if Mitt Romney is elected?

FREEMAN: Romney said he doesn't want the big hikes on income or investment.

GIGOT: He's going to repeal ObamaCare.

FREEMAN: He's going to repeal ObamaCare.


FREEMAN: He's also saying he wants tax reform to bring down the corporate rate to something roughly competitive with the world. So I think the hope is that you would probably see, if Romney is elected, a postponement of the big fiscal decisions. In other words, the tax increase would not hit January 1.

GIGOT: Not hit right away. OK. All right. Big tax choice in this election.

Coming up in our second half hour, with just 10 days to go, the presidential race could come down to a small group of voters in a small group of states. Michael Barone tells us why all eyes should be on suburbia.

Plus, President Obama says the military cut set for January won't happen, and weren't his idea in the first place. But will voters in Virginia and other defense states buy what he is selling come Election Day?

Plus, a measure on the ballot in Michigan seeks to enshrine collective bargaining rights the state's constitution and give a boost to unions nationwide.



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

Well, with just 10 days left, the outcome of the presidential election no doubt hinges on a relatively small group of key states, but perhaps not the states that either campaign or the political pundits might have expected. Recent polls show the race tightening in Wisconsin, Pennsylvania and Michigan, all of which President Obama carried by double digits in 2008.

And my guest this week says Mitt Romney may have suburban voters to thank. Michael Barone is a senior political analyst for The Washington Examiner and resident fellow at the American Enterprise Institute.

Michael, great to have you back.

MICHAEL BARONE, AMERICAN ENTERPRISE INSTITUTE: It's good to be with you again, Paul.

GIGOT: So where do you think this race stands right now? Is Romney surging as much as the polls would appear to make it seem?

BARONE: Yes. I think Romney is ahead in the race in the national race. I think he is within striking distance of the 270 electoral votes he needs. And Paul, the areas of the country where he's made the greatest gains...

GIGOT: Right.

BARONE: ... when you compare him with the showing of John McCain in 2008, appears to be the affluent suburbs. Once upon a time, affluent suburbs were solid Republican territory. George H.W. Bush in 1988 got big margins in them and carried states like Pennsylvania, Ohio, Michigan, Illinois, California. In the four suburban counties outside Philadelphia -

- Bucks, Chester, Delaware, Montgomery -- he got 61 percent of the vote.

GIGOT: Right.

BARONE: That zeroed out the Democratic margin in the city of Philadelphia. If you look at the -- over the last 20 years, there's been a Democratic trend in the affluent suburbs, and so Barack Obama carried those four counties in Pennsylvania with 57 percent of the vote...

GIGOT: Right.

BARONE: ... an he carried the state. Mitt Romney, who grew up in Bloomfield Hills, Michigan...

GIGOT: Which is a suburb of Detroit.

BARONE: ... a high-income suburb -- yes, right -- well, I grew up in the same area, went to the same high school, so I'm quite familiar with it.

He seems to be doing better. If you look at the battleground poll -- or the Pew Research poll, where you've got pretty big samples, so if you get a subsample, you have some confidence that the numbers are good -- you see that Romney post-October 3rd debate is carrying by, apparently, statistically significant margins, 7, 8 points, people with incomes over $75,000.


BARONE: Barack Obama carried them 50 to 49, according to the exit poll, in 2008. Romney's made bigger gains with the high-income people than with people in the lower-income category.

GIGOT: You know, the swing over the last 20 years in those affluent suburbs has been attributed a lot -- towards Democrats has been attributed a lot to the culture, to such cultural issues as gay marriage, abortion, and so on, and the southern tilt of the Republican Party.

Is the swing back this year really because of the economy trumping culture in the minds of most voters?

BARONE: Well, I think that's true of all segments of voters. The economy is trumping the cultural issues. It's sort of rubbed them out.

I think, also, Mitt Romney is more the kind of candidate that people in affluent suburbs tend to cotton to. He's from those suburbs himself.

He won the Republican nomination, basically, in affluent suburban counties, and he's -- he's got -- you know, he's -- he's shown himself in that first debate to be more articulate than Barack Obama, the supposedly great orator.

People in affluent suburbs like people who are articulate, people who use words good, as I like to put it...


BARONE: ... and that's an advantage that Mitt Romney has and that he demonstrated to great effect there. And I think -- you know, I wrote earlier (INAUDIBLE) in The Washington Examiner that Romney was, you know, a kindred spirit to many affluent people. He's articulate but politically awkward...

GIGOT: Right.

BARONE: ... on occasion. He's able to make a sharp point but he's polite about it. And he's -- while he's conservative on the cultural issues, he has an attitude that reminds me of the inscription on the tombstone of an 18th century English woman, which noted approvingly she was religious without enthusiasm.


GIGOT: Well, here's -- here's -- what about this -- this -- this Democratic argument you're hearing now that says, OK, all of that might be true, but Republicans have no chance at Michigan and Pennsylvania anyway.

And look, in Ohio, which the Republicans have to win, Romney has to win, that's where Barack Obama is still leading. He's still leading Wisconsin and Iowa and Nevada. That's his firewall, and unless Romney can break through that, he's not going to win the election.

BARONE: Well, his firewall used to include Florida and Virginia, and they're not talking about that as firewall states anymore with Romney ahead in Florida.

The very fact that Michigan and Pennsylvania, which Obama carried by

16 points and 10 points four years ago, have gotten close, I think, has got to be an indication that the affluent suburbs -- Oakland, Macomb, Livingston County in Michigan, Bucks, Chester, Delaware Counties in Pennsylvania -- have been moving towards Romney in a significant way.

And I think that, you know, the Democrats are giving you static analysis there, and I think there may be a dynamic at work here. The affluent suburbs are places that people generally tend to turn out in large numbers, and we've seen signs that Republicans have more enthusiasm this year.

GIGOT: Right, but Michael...

BARONE: I think one reason Ohio is closer is that affluent suburban counties are only about an eighth of the statewide votes there. They're a quarter in Michigan and Pennsylvania.

GIGOT: But aren't -- the Republicans -- Romney campaign is saying they're making a major, major investment in Ohio, time and money. But if -

- are they making -- taking a gamble by making a bet on Ohio, that if they lose, they will not have fought or invested a lot of money or time in Michigan and Pennsylvania, which they might win? Are they making a wrong bet on Ohio?

BARONE: Well, I think they're probably making a correct bet on Ohio.

Ohio's 18 electoral votes are pretty important to them. If I was them, I would be going up on the Philadelphia and Detroit media markets, or at least being (ph) serious consideration to it, because those are the ones that get the bulk of the affluent suburbs in those states. So I'd be going up with ads geared to that population.

GIGOT: All right. Michael Barone, thanks so much for being here.

We're going to be watching.

Still ahead: Billions of dollars in defense cuts set to kick in come January. President Obama said Monday the so-called sequester will not happen and wasn't his idea in the first place. We'll check the facts and tell you why it could matter in some key states on Election Day.



PRESIDENT BARACK OBAMA: The sequester is not something that I proposed. It's something that Congress has proposed.

It will not happen. The budget that we're talking about is not reducing our military spending, it's maintaining it.


GIGOT: That was President Obama in Monday night's debate claiming that the impending defense sequester, some $55 billion in automatic cuts coming to the military in January, will not happen and blaming Congress for coming up with the idea, part of a compromise last year to raise the debt ceiling.

We're back with Dan Henninger and Kim Strassel, and Wall Street Journal editorial board member Matt Kaminski also joins the panel.

So the president denying paternity for the sequester. Matt, why don't you apply a paternity test?


MATT KAMINSKI, WALL STREET JOURNAL: (INAUDIBLE) two whoppers there, and the first one is that it was the White House idea. Bob Woodward's last book...

GIGOT: And how do we know?

KAMINSKI: Bob Woodward's last book, which is heavily sourced in the White House, not denied by them, said Gene Sperling brought it forward...

GIGOT: Economic adviser.

KAMINSKI: ... exactly -- last year. The Republicans didn't even understand it, and it took a couple days for them to even figure out what it was...


KAMINSKI: ... that it was this across-the-board cut.

GIGOT: Right. Shrewd Republicans right, you know, cat-quick.



KAMINSKI: And the second whopper there is that the defense budget for this year, actually for 2013, cuts the budget in nominal terms for the first time since the '90s. They have reduced defense consistently for the last four years. It's the one federal program this administration has clearly not liked.


HENNINGER: I thought it was a totally politicized statement. What he said, it will not happen, was aimed at Virginia and New Hampshire, two states with big defense plants and industries.

Secondly, blaming Congress was by way of saying if it happens, Virginia and New Hampshire, it's going to be Congress's fault. And Matt is exactly right. If -- it was the White House that brought it to Congress, and it was meant to be a sort of sword of Damocles held over the Republicans to blink and raise taxes. They didn't blink, and the sequester went through.

GIGOT: He wants to cross-pressure the Republicans between a tax increase or defense cuts, and he thinks, understandably, they'll in the end probably go for -- or he hopes they'll go for a tax...

HENNINGER: Still does.

GIGOT: ... which is why the Democrats on Capitol Hill were willing at least to risk some domestic spending cuts.

So Kim, how is this playing on the campaign trail? Because Mitt Romney is trying to make hay with this defense issue in states like Virginia, New Hampshire and Ohio.

STRASSEL: And that is unfortunate for the president, and they've have been worried about this, which is why, for instance, the administration was advising defense companies to not send out legally required layoff notices, which were due to hit right before the election, because they were worried about the fallout in places like Virginia and New Hampshire. Also, North Carolina has a big defense industry.

And you're seeing Mitt Romney now running ads talking about the sequester, laying this back on the White House's lap. You're seeing Senate candidates like George Allen, who's the Republican nominee here in Virginia, hitting this very hard. And this is not necessarily helping the White House out there on the trail right now.

GIGOT: So you think this is a winner for Romney.

STRASSEL: In the -- to the extent that it has morphed into a jobs argument. It's two arguments. There's the national security argument, which does appeal to someone (ph), this argument that the president is not proactively doing something...

GIGOT: Right.

STRASSEL: ... to stop these cuts to defense. And then there's also the jobs argument that this is going to hurt those who work in the defense sector.

GIGOT: Matt, how much real damage would there be to the defense of the United States in year -- in 2013 if these -- if these defense cuts hit?

Because there's a lot of people who argue, Look, Defense Department has a lot of bloat. And by the way, if we're going to be cutting domestic spending, shouldn't the Pentagon take a hit, too?

KAMINSKI: Right. Well, the Pentagon only accounts for a fifth of federal spending and it's being asked to take half of the reductions both in the sequester but in the previous budget plans, as well. The problem is that the Pentagon -- basically, Bob Gates, who was the previous Pentagon chief, said you need 2 percent growth a year just to maintain what you have, to you know, fix the ships.

GIGOT: The increase in cost of living.

KAMINSKI: Exactly. And they're bringing it down to 1 percent. They have -- over the last decade, we've been involved in wars, obviously, in Afghanistan and Iraq. A lot of, you know, tanks and ships haven't been maintained in that time. We're also the only superpower in the world, so yes, it is true that the U.S. does spend more than the last -- than the next 10 countries combined. But we also are asked to do a lot more than anyone else.

GIGOT: All right. Dan?

HENNINGER: Well, I think for years, the Democratic Party looked at the defense budget the big rock candy mountain, a lot of money that they could transfer into domestic spending. And keep in mind that the president keeps saying out there that the money spent on Iraq and Afghanistan is going to be reprogrammed into domestic investments. And that, I think, is what they would like to do down the road with the rest -- much of the rest of the defense budget.

GIGOT: Although Republicans may be talking themselves into a tax increase here because if they say that it's going to be damage to the troops, then what choice do you have? You can't let them suffer. So there's going to be some tough decisions coming up.

Up next: We go to Michigan, ground zero this election season in the battle to rein in big labor. A measure on the ballot there could give unions unprecedented new power. So is it likely to pass?


GIGOT: Well, it's down to the wire in Michigan, where an expensive battle is being waged over a union-backed ballot measure that would enshrine collective bargaining rights in the state constitution and prevent so-called right to work legislation from being pursued in the state legislature. If it passes, Michigan would become the first state in the nation to constitutionally guarantee union rights, putting it front and center in a national debate about the power of organized labor.

We're back with Dan Henninger and Matt Kaminski. And Wall Street Journal senior editorial page writer and union watcher Collin Levy joins us.

So Collin, you've been following this Michigan debate. What would that -- what would this measure mean for the state of Michigan in terms of union rights?

COLLIN LEVY, WALL STREET JOURNAL: I mean, Paul, this is an unbelievable union power grab! What you basically have to understand about what's going on with this ballot measure is that it would essentially give the unions in Michigan a pocket veto on any legislation involving anything that could be remotely connected to collective bargaining.

So you know, they've already looked at this, and the Michigan attorney general, Bill Schuette, has said that this would not only affect future laws, but it could actually overturn as many as 170 laws already on the books. So this would be something that would be endlessly litigated, and it essentially gives union bosses, you know, more authority than the legislature!

GIGOT: Well, so what kind of laws would be -- that have been passed, that most, I guess, people in Michigan would say, you know, that, We've come to live with them, they were settled democratically, people agreed to them...

LEVY: Right.

GIGOT: ... the legislature passed them, a governor signed them, we had elections afterward. What kind of -- what laws would be overturned?

LEVY: There are two laws in particular that they're concerned about.

One is the so-called 80-20 law, which basically says that taxpayers don't need to pay more than 80 percent of public employees' pension benefits.

GIGOT: Right.

LEVY: And the other one is a law, basically, regarding teachers. You know, the fact that, you know, there have been some school reforms that have allowed various merit measures, and you know, teacher promotion measures that could also be overturned by this.

This is something that Michelle Rhee, as you know, the former D.C.

schools chancellor who now runs a StudentsFirst group, is very concerned about, and her group has recently made a big ad buy in Michigan to fight this.

GIGOT: So they put some money in. You know, Governor Rick Snyder, the Republican in Michigan, asked union leaders not to put this on the ballot, and he said, In return, I won't -- I'll tell business people, Don't put a right to work law on the ballot. The business leaders agreed. Labor put it on the ballot anyway! Did Snyder get played like a patsy here?

LEVY: Yes, I mean, he probably did. And you have to understand, too, Michigan is a heavily unionized state. It's one of the most unionized states in the country, with about 18 percent of the workforce. So it's one of the reasons that they're using Michigan here -- unions are using Michigan as their test case for this new idea that if they just go on offense and enshrine the rights in the constitution, then they won't have to fight on the back end, like they've had to do in places like Wisconsin.

GIGOT: Right. If this passes, no more Scott Walkers in Michigan, and then it'll go to 20 other or so states with the right referendum. So this is a very big deal.

KAMINSKI: It is. I give the unions credit. You know, they were sort of on the back foot in Wisconsin. In Indiana, Mitch Daniels took away the paycheck check-off where you automatically, if you're a government employee, your due goes to the unions.

GIGOT: Right.

KAMINSKI: Now you have to choose. Union dues...


GIGOT: ... employee.

KAMINSKI: Exactly, by 80 percent or something. So this is really an attempt to sort of firewall in Michigan and try and push back.

GIGOT: So I mean, are the business groups sufficiently mobilized here to actually fight back, or have they been caught napping and this could be

-- they could -- they could lose?

KAMINSKI: They could lose. (INAUDIBLE) actually be a precedent for other states. Obviously, (INAUDIBLE) issues are coming up in California, as well, where unions are fighting the initiatives to rein them in. I mean, public sector unions are the only entrenched lobby in America today that's fighting for big government and the taxes to pay for it. And that's really the bigger battle in Michigan and across the country now.

HENNINGER: And if it spreads, it will be an empty victory, Paul, because businesses in states like Michigan and Ohio and Wisconsin will move out. They'll go down to Tennessee, Kentucky, South Carolina and Texas, leaving those states with nothing but these enormous public debts to the unions.

GIGOT: So Collin, where does this stand electorally now? What's it doing in the polls?

LEVY: It's extremely close, actually. It's within the margin of error. And you know, this is something that The Detroit News has said in its recent poll -- I think it was 43-41. So this is going to go right down to the wire. Unions are pouring in money, and you know, it could be close.

GIGOT: Yes, national unions are really pouring in the dough.

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

of the week.


GIGOT: Time for "Hits and Misses" of the week. Dorothy, first to you.

RABINOWITZ: Well, here's a miss to the National Geographic Channel, which is normally a reliable and objective network. And that is because they are airing two nights before the election a film about SEAL Team Six which manages, by the way, to enlarge Obama's role and essentially is a kind of cheerleading for Mr. Obama.

Now, the channel says that this is not politicized. However, this damage to its reputation by the large suspicions being raised for very good reason was not a good corporate decision.

GIGOT: All right, Dorothy. Matt?

KAMINSKI: Paul, here's a hit to my hometown or the home borough of Brooklyn. It's the hipster Mecca of the country, but...


KAMINSKI: But next week, you're going to have the return of professor sports for the first time in over 50 years, since a certain baseball team left for the West Coast. It really marks the return of Brooklyn, although old (ph) Brooklynites will say that until the Dodgers come back, Brooklyn will never really be back.

GIGOT: All politics is local here for Kaminski. All right, Collin?

LEVY: Paul, recently, the federal appellate court in Washington, D.C., has been striking down some federal regulations from places like the Securities and Exchange Commission and the Environmental Protection Agency.

And this has enraged federal regulators and some liberal journalists, who've begun an intimidation campaign to, basically, get the judges, including George W. Bush appointee Brett Kavanaugh, to back off, you know, doing this kind of stuff.

So it's really an ugly scene. And this a hit to the judges for sticking to the law and not the politics.

GIGOT: OK. All right. Under-covered story there. Steve?

MOORE: More signs that "Government Motors" just isn't working for taxpayers. The Obama administration has put $5 billion of taxpayer money behind the development of an electric car, but just in the last few weeks, one of the major battery companies that makes the batteries for these cars went bankrupt. And now another major producer of electric cars looks like it's in financial trouble.

Paul, we should have a policy in this country that says separation of car and state.

GIGOT: All right, Steve. Thanks very much.

And remember, if you have your own hit or miss, please send it to us at And be sure to follow us on Twitter @jeronfnc.

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

Content and Programming Copyright 2012 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2012 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.