'Journal Editorial Report,' April 3, 2010

This is a rush transcript from "The Journal Editorial Report," April 3, 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," fresh from his health care victory, the president plans a spring offensive from cap-and-trade to immigration reform. The priorities he'll push in the months ahead.

This as the battle over Obamacare continues. More than a dozen states signed on to a lawsuit against the federal government. Could this new law be unconstitutional?

And as the first Race to the Top winners are announced, a closer look at how two just states qualified for $600 million in cash. Did union politics seal the deal?

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

Fresh from his health care victory, President Obama is a planning major spring offensive, hoping to capitalize on what Democrats see as regained momentum and the White House plans to push through as many domestic priorities as possible during the midterm election. Some of the things on his to-do list, financial, campaign finance and maybe immigration reform passing cap-and-trade legislation and closing the prison at Guantanamo Bay.

Here with a look what to expect from now until November, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; editorial board member, Jason Riley; and Washington columnist, Kim Strassel.

Kim, before we get into some of the specific issue areas, I want to ask you a broader political question. Nancy Pelosi, after health care passed, said this is now the model that Democrats plan to use to pass these other priorities. Is this really what they're going to do, try to pass these bills on party line partisan votes?

KIM STRASSEL, WASHINGTON COLUMN: Well, they really don't have any choice if you look at that list that you just put out there. Think about it. Most of these things were actually supposed to be on the agenda and supposed to be passed last year, and one of the reasons they didn't do it not just that they were pre preoccupied with health care, but there has not been a lot of enthusiasm for a lot of these different policy priorities. So there are going to have to — yes — look at votes like, for instance, cap-and-trade in the House last year, passed on the bare minimum. The legislative reform — financial reform bill, again, passed on party-line partisan vote. This is what they're going to be doing. A lot of the stuff has to go through the Senate.

GIGOT: Right.

STRASSEL: There's not going to be bipartisanship around here.

GIGOT: Financial reform, James, let's take that first because two Republican Senators, Bob Corker of Tennessee and Judd Gregg of New Hampshire, said they thought this would pass, a hundred percent certainty this will pass. Are they right?



It is nowhere near 100 percent. Those are two senators who are still not backing it. The reason they're not backing it is —

GIGOT: Corker said this week he can't support the current bill.

FREEMAN: Right, because it has no political force. What the administration wants to do is cast this as their bill versus Wall Street.

GIGOT: Right, taking on big banks.

FREEMAN: They can't help themselves. They keep wanting this authority to bail out Wall Street. It's in the Dodd bill and they keep pressing for it to be in there. As long as that's in there, it's not going to have any political force because, bulletin to the White House, Wall Street likes bailouts.

GIGOT: But Democrats are selling this as a populist action against Wall Street.

FREEMAN: Isn't it amazing?

GIGOT: They think — but they can pin Republicans and say, you're defending the big banks because you don't want to raise taxes on the big banks. You still want to help them. They are making record profits. Of course, it's the policy of the current administration that are helping them make those profits, but—

FREEMAN: They're not going to get anywhere from that argument. And the reason that people like Corker have not jumped on board is because this is a bailout bill for Wall Street and it's not going to have the political force that they want unless they're willing to step back and say, OK, we're going to cut back the powers in the fed and the FDIC.

GIGOT: And allow this to be essentially bankruptcy, to allow companies—

FREEMAN: The Republicans are saying give us something like bankruptcy. That's the politically strong message. That's what the American people want. I don't see how that's a — they're going to be pressured to come over and say, OK, we'll forget bankruptcy and go for bailouts.

GIGOT: So this is dicier than the conventional wisdom suggests.

All right, Jason, let's talk about immigration reform. The president promised when health care passed, some of his Democratic members, he would make a push on immigration reform. Is that going to happen? Is that going to be serious?

JASON RILEY, EDITORIAL BOARD MEMBER: One thing to keep in mind is when President Bush tried to do that unemployment was around five percent. Today it's nearly double that.

GIGOT: That worked well for President Bush, didn't it?


RILEY: And it's going to be tough with the job situation to push immigration reform. Secondly, it's an election year. This is a very controversial issue, and not something members are going to want to talk about in their districts, I don't think. And the other thing that the administration miscalculated here is that Obamacare is not conducive to more open immigration. Expanding the welfare state is not conclusive to letting lots of more, more low income people into the country, the way the Obama administration wants to push it, immigration reform.

GIGOT: OK, so also not likely.

Kim, let me go to you on cap-and-trade and energy legislation, because this week, the White House unveiled new oil drilling possibilities off shore, modest as they were. Nonetheless, some people think that was intended to help bring some Republicans along on their larger cap-and-tax agenda. Is that going to work to bring Republicans?

STRASSEL: Well, not just Republicans, but Democrats. The thing to bear in mind on energy legislation is it's often about geographical lines as partisan ones. The problem the president has right now with the economy doing as poorly as it is this kind of very expensive cap-and-trade, cap-and-tax sort of policies are going to be really hard in particular on manufacturing states, the Midwest, people that use a lot of coal, coal areas. And this is not sitting well with a lot of Democrats. And this is why this legislation hasn't passed. So, yes, what he did was he came out and is offering some drilling concessions and he wants to offer some nuclear concessions and all designed to not just get Republican support from people like South Carolina's Lindsey Graham, but get some of his Democrats on board.

GIGOT: Right. But Kim, all this has to do is pass the Senate. As you said earlier, this has passed the House. If they get it through the Senate, and only need two or three Republicans to come along, wouldn't this give them the ability to push this across the finish line?

STRASSEL: It's true, but it's a little more complicated. It's sort of like health care. What they passed in the House was this massive, giant bill full of carve-outs and complicated things that do not include any of the president's concessions on drilling or nuclear loan guarantees, for instance. So you would have to convince the House to come on board and put a bill together that both chambers could agree to. That could take a lot of time and could be as fractious as health care.

GIGOT: They don't want to vote for a tax increase. That's the other big —

STRASSEL: Right before election, yes.

GIGOT: Before election.

Let's talk about national security, Dan, and Guantanamo closing. Lindsey Graham, the senator from South Carolina, has been talking to the White House Chief of Staff Rahm Emanuel, about a deal he would help them get the money to close— Graham would, close — Graham would — close Guantanamo if the administration would let Khalid Shaikh Mohammed and others terrorists be tried not in New York in civilian trials, but in military commissions. Is that going anywhere?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: I don't think it's going anywhere much, Paul. Guantanamo, like some of these other issues — remember how we used to talk about Social Security as the third rail of politics, a toxic issue no one would touch. Virtually all of these issues are third rails because of the glare and publicity they get from the media these days. We went through health care and ended up with reconciliation, the most arcane process in the Congress. And 75 percent of Americans can talk in depth about reconciliation, right?


GIGOT: That's an unfortunate turn for the country, I have to say.


GIGOT: — to do what we have to do for a living. Poor America

STRASSEL: Poor America.

HENNINGER: I don't think Gitmo has a problem like that. They may, on another national security issue, be able to pass this treaty that the president just signed with the Russians, the Strategic Arms Reduction Treaty, START. I think that the Republicans do not want to be on the wrong side of a national security issue. And I must say, a lot of these Republicans who did not vote, they're in drug withdrawal. They've got to vote for something, these guys have to, and they're going to find a way to do it.

GIGOT: I have a hypothesis, Jason. The administration knows it's not going to get most of it. What it wants to do after health care is to try to say to base voters, look, we've got these other agenda items. If you don't come out and vote, these things are not going to happen in our first turn. They're trying to gin up the base and enthusiasm to avoid what happened in Virginia, New Jersey and Massachusetts.

RILEY: They could be thinking that way, but I think the Republicans are saying, hold tight we're going to do well in November and we'll come back with more numbers next year to fight these battles. Why should we fight them now?

GIGOT: But if they oppose these things, some may fear we may not get as many gains as we want. That's the debate the Republicans are going to be having.

OK, when we come back, the legal challenges to Obamacare. Fifteen states are suing, saying the new law is unconstitutional. Do they have a case?


GIGOT: Well, Obamacare may have passed, but the battle is far from over. Led by Bill McCollum of Florida, attorneys general for more than a dozen states have filed suit in federal court, challenging the constitutionality of the federal overhaul.

Attorney David Rivkin has signed on as outside counsel to several states that are party to the lawsuit. He joins me now.

David, welcome.


GIGOT: The bill mandates, health care bill mandates that all individuals in America will ultimately have to buy a government-sanctioned insurance policy, the states say this is unconstitutional. What's their argument?

RIVKIN: The argument is that this kind of a mandate that's not tied to any economic activity, but imposed on people merely because they exist, exceeds the reach of the Commerce Clause of the Constitution. A broader proposition is it would violate a key element of our constitutional architecture, namely that the federal government is the government of limited enumerated powers, that states retain substantial authority, and that the dual sovereignty system a key way of protecting individual liberty.

GIGOT: OK, so it infringes fundamentally on state powers. Is that one of the reasons — a lot of people would say, the states mandate car insurance, you have — individuals have to buy car insurance if you want to drive. How is this mandate different?

RIVKIN: The difference is precisely that states have general legislative powers, what is often referred to as police powers. As James Madison said on the federalist papers the powers of the federal government under the constitutions are few and finite. The powers of state governments are numerous and infinite. The fact is that the state government can do that, whatever its policy merits, have nothing to do with the federal government's constitutionality it do it. Second — it's funny. People often mention the driving as examples. There's no constitutional right to drive. And the state imposes this on you as a pre-condition to —

GIGOT: If you want to drive.

RIVKIN: If you want to drive. Only if you use public roads. If you have your own ranch and you want to drive there, you don't need a driver's license, and you don't need insurance.

GIGOT: Has there ever been a case, an example previously of the federal government mandating, forcing individuals — to say you must buy this product. Can you recall that?

RIVKIN: Never, it's never happened in the 200-plus years of our republic. This underscores how indeed revolutionary, unprecedented this is. The problem here, again, we're not talking about a pedantic constitutional principle important to law professors.


If the federal government can mandate the purchasing of health insurance, merely because doing so would be to advantageous to this broad regulatory scheme, Paul, there's nothing they cannot mandate. They can, in effect, conscript you to use your hard earned dollars to purchase a variety of goods, services and commodities.

GIGOT: But here is an argument a lot of supporters make, that is, this is structured — this mandate is structured as a tax. You pay a penalty if you don't buy insurance. And a tax under the Constitution is surely legal and constitutional. Ever since the 16th Amendment passed, we can have income taxes. So what's wrong with this?

RIVKIN: The short answer is, first of all, the mandate is separate from the tax. So the taxing mechanism does not redeem the constitutionality of a mandate, point number one. Point number two, this is not a true income tax. We would argue that this is a direct tax imposed by the federal government that's really in the nature of a surcharge and not a true income tax. And you mentioned the 16th Amendment. 16th Amendment only allows the federal government to impose taxes on income for whatever source is derived. A very important point. The limitations on the federal government's taxing authority are on the same basis or derived from the same basis as limitations in the Commerce Clause because you don't want to have a federal government with too large of the power. And again, to underscore, it's not just protecting state's sovereignty. It's protecting individual liberty because you want to diffuse power. You want to make sure that no governmental institution wields too much power.

GIGOT: Right.

RIVKIN: Know what? Progressives and liberals should love the principle. We hear it all the time in the War on Terror cases.

GIGOT: I suppose that's right. The other argument we often hear is the argument about the Constitution's Supremacy Clause, which gives Congress the power to pass something and says that the states cannot nullify that legislation. Why is — again, is this example different than many other cases that the Supreme Court has decided in favor of Congress?

RIVKIN: The answer is very simple. The Supremacy Clause indeed allows federal legislation to trump both state legislation and even state constitution, provided — provided that the federal government is acting constitutionally. So unconstitutional federal legislation does not trump anything at the state level.

GIGOT: So this will come down to a question of whether or not, in the mind of the justices, this is constitutional. I want to ask you one more question about the politics of this. The justices care about the law, of course, but they also care about their reputations. Do you really think five justices of the Supreme Court are going to vet to overrule a legislation that is so far reaching, so long-debated? Won't they fear a political backlash?

RIVKIN: I do. I do, for a couple of reasons. Call me naive, but first of all, this is so vital to our constitutional architecture. If this law is upheld it would fundamentally reshape the relationship between individuals and the government, between states and the federal government in ways that are unprecedented in 200-plus years. That's my idealistic side.


My pragmatic side says, if you look at relevant case law, Justice Kennedy, who will be the leading justice, the swing vote here, in several cases, including the famous case in '95 called Lopez —

GIGOT: Right.

RIVKIN: — wrote eloquently about the importance of preserving the dual sovereignty system and how an overly broad Commerce Clause would actually swamp it.

GIGOT: All right.

RIVKIN: He wrote a beautiful opinion. That's good.

GIGOT: All right, we're going to be watching this closely.

David Rivkin, thank you.

When we come back, Delaware and Tennessee Race to the Top, taking home a combined $600 millions in first round of the Obama administration's education reform competition. Why those two states? Did union politics play a role? We'll investigate next.


GIGOT: Education Secretary Arne Duncan announced the first round of winners on the Race to the Top this week. That's the $4 billion dollar competition that the Obama administration set up to reward states with the most ambitious plans for improving their public schools. Forty states and the District of Columbia applied for the grants and, in somewhat of a surprise, just two were chosen. Delaware and Tennessee the big winners taking home a combined $600 million. The big question is why they won.

Jason, you've been following this closely. Are Delaware and Tennessee the most deserving?


RILEY: Well, to hear the administration tell it, Delaware and Tennessee are planning to put in place these data systems that will allow teachers to be evaluated based on student achievement. And the administration said we like that. And they are going to work on turning around bad schools in rural areas and across their states. And the administration said they liked that, too. The problem is that —

GIGOT: Do you think that that is useful — those are useful moves? Is that right, just on the substance?

RILEY: Yes. Sure, sure, less on the turn-around efforts of bad schools. I'd rather see those schools closed and replaced. But yes, on using student data to evaluate teachers, yes, absolutely. We should use more of that. I'm glad to see the administration is encouraging that. The problem is that lots of the finalists had those two aspects of their applications up to snuff. The difference — and the administration was quite upfront about this. If you listened to Arne Duncan talk to reporters after his announcement, he said what they like about Delaware and Tennessee is that they got the union buy-in. The establishment — the public education establishment was behind the applications of these two states, and that's what a lot of the finalists didn't have. States like Florida and Louisiana did not have the union support of their applications like Tennessee and Delaware had. And I would argue that that should be a knock on Tennessee and Delaware.


GIGOT: So states in this competition were punished if they promoted reforms that were so aggressive, so forward leaning, and therefore, the unions opposed them. This hurt the state's applications.

RILEY: If you want bold reforms, you must allow states to cross the unions. Because the unions are the ones preventing bold reforms.

GIGOT: What are the examples from Florida and Louisiana and let's throw in the District of Columbia here, because Michelle Rhee, the superintendent, has been in a pitched battle with the teachers in her state, in her district, over teacher tenure.

RILEY: All three of those states are trying to change collective bargaining agreements, these contracts that control how public school systems —

GIGOT: To allow what?

RILEY: Well, to allow merit pay and teachers to be paid based on how the students are doing.

GIGOT: To be able to fire teachers who are bad.

RILEY: To be able to fire teacher who are bad. To be able to not give teachers jobs for life after only two years in the classroom. Things like that. The other thing the administration made a big deal about early on were charter schools.

GIGOT: Right.

RILEY: Delaware and Tennessee —

GIGOT: To its credit.

RILEY: To its credit. But Delaware and Tennessee have two of the weakest charter laws on the books, among states and among the finalists in a Race to the Top.

GIGOT: What's the lesson here for the other states? You better get buy-in from the union if you want to win?


RILEY: Exactly. Unfortunately that's it. Bring the unions on board. It will help you win federal money.

GIGOT: And the National Education Association, the —

RILEY: Rah-rah.


GIGOT: The preeminent union, and their reaction was what?

RILEY: We're in control. They issued a press release the day after the finalists of the final two were chosen, saying, you heard it from the federal government. You guys have to deal with us if you want federal money going forward. And there is a second round coming up in September, and I'm sure states will keep that in mind.


HENNINGER: The sad truth is it's all about the money. There's $4.5 billion dollars involved here. And as the governor of Illinois said, we've got to get on the Race to the Top thing to get as much money as we can out of Washington. That's the sad bottom line.

GIGOT: And reform is secondary if you can get the — if you can game the rules enough to get through?

HENNINGER: Yes, and usually they can game the rules.

GIGOT: All right, Dan.

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


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

Dan, first to you.

HENNINGER: On Tuesday, President Obama signed the legislation allowing the Department of Education to take over the student loan programs. And on Tuesday, when students went into the department's Web site, they got an error message because the Web site was down, suggesting that the government is too big to work.

Now, you've got to worry. If the Chinese can hack into the Pentagon's most secret weapons programs, how hard is it going to be for an MIT freshman to hack into the Department of Education loan program?


GIGOT: They may have to do that.



RILEY: This is a hit to the scientists in Switzerland, who recreated the big bang by getting the sub-atomic particles to collide. It took 16 years and the machine cost $10 billion. But they got it done and now more mysteries of the universe could be solved.

GIGOT: Good use of taxpayer money?


RILEY: I think so.

GIGOT: All right.


FREEMAN: This is a big hit to the world's investors for giving us the honest accounting of Obamacare that we never got from the Congressional Budget Office. Paul, I'm not bashing CBO. As you know, the rules say they have to do bogus accounting.

GIGOT: Congressional Budget Office, yes.

FREEMAN: But the ten-year swap spread, which is jargon, went negative this week, or last week, after the passage of Obamacare. What that means is investors around the world thought that American companies were a better credit risk than the U.S. Treasury. So this is a strong signal from the market saying stop spending.

GIGOT: It's come back a little bit now.

FREEMAN: It's bounced back. There's less corporate debt issuance this week. This is a tough call. The U.S. Treasury has the ability to print money unlike Coca-Cola.

GIGOT: Alas, it does. The fed does.

And remember, if you have your own "Hit or Miss," please send it to jer@FOXnews.com.

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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