This is a rush transcript from "The Journal Editorial Report," October 3, 2009. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," talking to Iran. What the U.S. got and gave away at this week's negotiations.

And health care double-talk. Democrats want you to pay a penalty if you don't buy insurance. But whatever else you do, please don't call it a tax.

Plus, a preview of the big elections this November and why they may signal trouble ahead for the president's agenda.


PRESIDENT BARACK OBAMA: We're committed to serious and meaningful engagement but we're not interested in talking for the sake of talking. If Iran does not take steps in the near future to live up to its obligations, then the United States will not continue to negotiate indefinitely. And we are prepared to move towards increased pressure.


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

That was President Obama Thursday warning Iran that the U.S. won't talk forever. Representatives from the United States, U.K., France, Germany, Russia, and China met in Geneva this week with Iran's chief nuclear negotiator, Saeed Jalili. Iran reportedly agreed to grant U.N. inspectors access to its newly disclosed uranium enrichment facility at Qom. So will our patience payoff?

Iranian journalist, Amir Taheri, joins me here from London.

Amir Taheri, great to have you back on the program.


GIGOT: The New York Times said that the Iranians had made key concessions. Do you agree with that?

TAHERI: Not at all. In fact, the negotiations were about three United Nations resolutions that demanded that Iran should stop uranium enrichment. Now the negotiations are no longer about that, but about IAEA, International Atomic Energy Agency, inspectors being allowed to inspect one of the sites that Iran has declared. So from disarmament, it became inspection.

GIGOT: What about the ability to at least inspect this new site, which was only disclosed last week? Iran had not previously disclosed it. I guess the U.S. intelligence had known about it, but didn't tell anybody else. Isn't it good that we could get access to that?

TAHERI: Well, yes, you know, Iran is obliged to allow access under the non-proliferation treaty and other Iranian sites are under inspection by the IAEA. There are in fact cameras installed in all of the Iranian sites. And this one would have happened in the same way. But there's no concession there. I don't see why the IAEA inspectors, who are in Tehran now, don't drive to this new site, an hour's drive, and have a look now. Iran has promised to allow them to go within the next few weeks. Why shouldn't they go there now? Why should we wait so that everything is sanitized there?

GIGOT: What about the willingness of Iran — and they said they might be willing to do this — to take uranium, some of the uranium which they've enriched — and this is the fuel that could be used to make the nuclear weapon — take that enriched uranium and move about 75 percent of it outside of Iran, to Russia or France? Isn't that a concession?

TAHERI: Not at all. That was also an idea put in by Mr. Putin of Russia three years ago. The issue is that the U.N. asked Iran not to enrich uranium. It is like haggling in a carpet bizarre. As long as you buy the main carpet, they give you some caviar. They will give you some tea. They will give you a little rug. They will kiss you on both cheeks and so on. But the rug, you have bought it. And Iran will say that Mr. Obama has bought Iran's right to continue to enrich uranium.

GIGOT: So your conclusion would be that Iranian leaders have no intention of giving up nuclear weapons program?

TAHERI: Absolutely not. To be honest, they say themselves openly, again and again, only you don't want to hear it in United States. They say categorically that Iran will not stop its nuclear project, period. Now, let's talk about other things, about Palestinian, about global warming, about trade, about the form of the United Nations. They are given a package, in which everything is mentioned, sadly, not saving the waste.

GIGOT: Put your self in the head of the Iranian leaders. If that's their intention, what do they hope to achieve from these talks? President Obama says the ultimate goal is to get them to cease and desist with the military program.

TAHERI: There are three things. First of all, they achieve some legitimacy at the time that Ahmadinejad has lost quite of his legitimacy because of the recent elections and the continued unrest in the country. His opponents say his policies are leading to sanctions and war. Now he's able, in fact, today, in Tehran, he says, see I won without sanctions and without war. That's the first gain he makes.

The second gain to save the right to continue enriching uranium. You could do it at a slower pace. The fact that you can continue doing it and now everybody is accepting that right is a major coup for Ahmadinejad.

Thirdly, to buy time until you know the mechanisms of American electoral system and so on, paralyze the Obama administration or the other elections, other people come and so on. By that time, Iran is already a nuclear power and it is too late for anything, to do anything about it.

In the meantime, while didn't negotiations continue? Of course, there is no possibility of anybody attacking the Iranian nuclear centers. At the same time, President Obama has asked Congress not to pass a bill banning the sale of gasoline to Iran.

GIGOT: Which would be a much more difficult sanction.

TAHERI: Yes. So Iran is protected, both against military action against it and the sanctions with these talks. These talks, of course, President Obama says cannot go on indefinitely. But Iran doesn't want them indefinitely. Iran wants them for the next 18 months to two years, not indefinitely. That would be enough. At this pace, the talks will last that long.

GIGOT: We'll be following them every step of the way.

Amir Taheri, thank you for being here.

TAHERI: Thank you.

GIGOT: When we come back, President Obama thinks you should pay a penalty if you don't have health insurance. But whatever you do, please don't call it a tax.


GIGOT: Democrats want to require you to buy health insurance or pay a penalty. But they don't want you to call it a tax. Under the Baucus bill, the so-called individual mandate would require everyone to buy health insurance or pay as much as a $1900 fee. If you don't pay up, the IRS could punish with you a $25,000 fine or a year in jail.

President Obama supports the individual mandate but refuses to call it a tax. When ABC News' George Stephanopoulos called him on it earlier this month, the president engaged in a little rhetorical tax evasion of his own, telling Stephanopoulos, quote, "You can just make up that language and decide that that's called a tax increase."

Joining the panel in week, Wall Street Journal columnist and deputy editor, Dan Henninger; wsj.com columnist, John Fund; and Washington columnist, Kim Strassel.

Dan, if it isn't a tax, what is it?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Why don't we call it a quack tax, because it seems to quack like a tax?


The biggest problem was that they have to do this to get everybody into the pool. One of the things that...

GIGOT: Into the insurance.

HENNINGER: Into the insurance pool. And one of the things the president said in that interview is, look, you are now part of a big pool. We've driven down costs so you can't opt-out. His problem here is this is coercion. Remember this came up in the primaries between him and Hillary Clinton.

GIGOT: President Obama opposed it. He said, Hillary, you would force people to pay a penalty. And he used it in his advertising against her.

HENNINGER: She was honest enough to say, yes, there would be a mechanism to force people — they have to have people into the pool to make it large enough to work.

GIGOT: Here's the issue, Dan. The argument on the other side is, why is this different than auto insurance? If you drive, you are, in most states, obligated to buy. If you won't buy it, you sometimes have to pay into a state liability pool. How is this different?

HENNINGER: You don't have to drive. You don't have to own a car. This is going to be literally all coercion, all in the pool. I think it is not the same thing as auto.

JOHN FUND, WSJ.COM COLUMNIST: Paul, I'm from California. You can have a law saying people should have auto insurance. One out of the five drivers on California roads don't have auto insurance. You can have the law. Whether they ought to be enforced is a separate issue.

GIGOT: Kim, on the politics of this, there are a lot of Republicans who are now saying this would violate the president's promise made in the campaign, and since, not to tax anybody who makes less than a quarter million dollars a year. Is this making any difference with Democrats, making them have any doubts about this program?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, I mean, so far, in their votes, no. The Republicans actually put forward a couple of specific amendments in this Senate finance mark-up this week, saying, let's make sure no one with income $250,000 pays a tax. Those amendments were voted down. So they are not changing their mind.

Let's not forget too, don't get hung up on the individual mandate tax. There are a lot of other ones as well. There was a new provision put in which is going to limit one's ability to deduct medical expenses from their taxes. There are taxes on medical device makers. There are taxes on insurers. And those taxes on corporations will be passed down to consumers. All of this is going to be more costly.

GIGOT: What we've seen in Massachusetts, which has a similar mandate and taxes, is a lot of the young people, in particular, won't buy insurance. They will pay the penalty, about $700 or so in Massachusetts, and still not buy insurance until they are sick, because they would rather spend the money on something else. In fact, the penalty is still less than the cost of insurance. That's one of the reasons the Democrats in Washington want to make this tax much steeper if they can so it will force people to actually buy insurance.

HENNINGER: The chief of staff of the Joint Tax Committee said the penalty could be $25,000 and time in jail. that is kind of stiff.

FUND: I don't think they can go that far. In Massachusetts, people who don't pay the penalty, they are trying to chase them down, but it is difficult. I think what this all does is takes the perverse incentives we've built into our health code and make them far worse.

GIGOT: What about the other tax in the Baucus bill, Dan? There's one on medical device makers, about $40 billion over 10 years. It's not that big an industry.

HENNINGER: Yeah, well, this gets back to the campaign again, in which Barack Obama said that he would only raise taxes on the rich. Nobody making $250,000 was going to get a tax increase under his administration. He has this huge medical entitlement that he's creating. Somebody has to pay for it. All of these fines and costs eventually will be passed through to individuals. You can call it whatever you want. You can call it a tax, a fine, smack, but the middle class is going to pay for it.

GIGOT: And down the road, John, coming, a value added tax. The Center for National Progress or American progress, John Podesta's think tank, who is very close to President Obama, has come out and said it is something we need.

FUND: The only way the European countries have been able to afford national health insurance is by all of them imposing a hidden tax, and that is the next step after we pass this massive entitlement program.

GIGOT: Kim, the momentum in Washington is still pretty strong in favor of this bill passing, is it not? The rumors are now that the administration is going to — the Senate is going to try to work this, and if they feed to maneuver through to some procedures, get it through, no matter what happens. Is that what you're hearing?

STRASSEL: They are desperate to get it through. The view clearly is that if the president were to fail on this, his key point from his campaign run, his key center of his agenda, that he would be wrecked for the rest of his term in office, so...

GIGOT: I don't really believe that, by the way, Kim.

STRASSEL: So there are discussions...

GIGOT: I don't believe that. I think that is something the Democrats have invented to pass this through. I think that the president is still personally quite popular. I think that if this failed, much as — when Clinton-care failed in 1994, he was able to revive his presidency.

STRASSEL: No, and I actually think that's right. This is the argument they are making. Some people believe this, that they have invested so much, they now must push forward under any circumstances. So what they are talking about is either trying to get those 60 votes to get past the filibuster, which still looks a little hard, maybe attaching this to some other form of legislation to push it through or, if they have to, still going ahead with this reconciliation process, kind of just jamming it through where you only need 50 votes. That is still on the table as well. But we will see movement in some way.

GIGOT: John, I don't see that they are going to let this not pass.

FUND: If the elections on November 3rd in Virginia, New Jersey, go against the Democrats, I think you could see a lot of the Blue Dog Democrats in the House rising up and saying, we saw what happened in 1994 and there is something worse than not passing a health care bill and that is us not being members of Congress.


GIGOT: Speaking of those elections, when we come back, why Democrats are sweating the November elections. We'll preview next month's two big governor's races and why both could signal trouble for the president's agenda.


GIGOT: New Jersey and Virginia, the only two states with governors' races this November, both may signal trouble for Democrats and the president's agenda. The polls have tightened in both states in recent weeks. The latest Clear Politics average has Republican Chris Christie leading Democratic incumbent Jon Corzine in New Jersey by four points. In Virginia, Republican Bob McDonald has a seven-point lead over the Democrat Creigh Deeds. The last time Republicans won both the New Jersey and Virginia governors' race was 1993. And Democrats remember all too well what happened in the midterm elections the following year.

John, why are these races of particular significance this year?

FUND: Barack Obama carried both states easily only a year ago. Now his approval ratings are hovering around the 50-percent mark in both states.

GIGOT: In both states.

FUND: And this is trouble. In 1993, as you referenced, when the Democrats lost Virginia and New Jersey, the Democratic Congress never again passed significant legislation. And then the Republican landslide came. The Blue Dog Democrats, 49 House Democrats, sit in districts McCain won.

GIGOT: 49?

FUND: 49. And about a dozen Democratic Senators, they are worried that if Virginia and New Jersey send a signal about dissatisfaction with Obama policies in general, although the president remains personally popular, that could mean their seats are in jeopardy during a landslide year.

GIGOT: Our colleague, Dan, Bill McGurn, who has the misfortune of living in New Jersey, says that there's an Obama-versus-Bush dynamic in both races as well. Describe that?

HENNINGER: In New Jersey, Jon Corzine's argument has basically been, if you want to elect my opponent then your voting...

GIGOT: Electing Bush and Cheney again?

HENNINGER: Right. He says it's the same old Bush policies that got us into this trouble. How Bush's policies had anything to do with New Jersey is anybody's guess. They've created their own problems.

But to pick up John's point, especially in Virginia, Obama carried Virginia by six points. It was the first time a Democrat had won there in 44 years. This is now one of these kind of swing states that the Democrats think they have begun to pull over to their side. Virginia, however, is not New Jersey. New Jersey is a Democratic state. Virginia is more of an anti-government state. If that goes back against them, just as John suggests, the Blue Dogs are going to say, whoa, I can't attach myself to this ideology.

GIGOT: Kim, you followed the Virginia race and have written about it. How much traction is the Republican candidate getting with linking the Democrat to President Obama's agenda?

STRASSEL: A lot. I'd argue that this is one of the reasons why. Now, he was up in August, he was up 15 points in the polls.

GIGOT: This is the Republican who was ahead.

STRASSEL: Yeah, the Republican who was ahead, Bob McDonald. He has had some trouble, a thesis that he wrote 20 years ago has popped up that suggests he had some sort of social views that haven't sat well.

GIGOT: Very conservative social views about women in particular.

STRASSEL: Women in the workforce, exactly. But what he had done, up until then when this issue came up, is just, day after day after day, connect Creigh Deeds, the Democrat, with the Obama agenda in Washington on spending, on health care and on union support and on everything else. Virginians, as Dan mentioned, they have elected Democrats to the governorship the past two elections. They tend to be very centric governors. And Creigh Deeds has tried to suggest that he's in that mold. He's had a hard time making that point thought He really has been seen as connected with this Obama administration. And he suffered as a result of it and he is struggling to get his message across that he is some sort of different Democrat.

GIGOT: What about the tax issue? Governors in Virginia, Democratic governors raised taxes twice at least in the last eight years, and Democrats multiple times this decade. And now New Jersey has some of the highest tax burdens in the country, maybe the highest according to the Tax Foundation. Is that making a comeback in these races, taxes?

FUND: It should. In New Jersey, 41 percent of voters say taxes are the number-one issue. And Corzine is not popular. But the Republican candidate, Chris Christie, has done a miserable job explaining what he would do about that.

GIGOT: He's a former U.S. attorney, put away a lot of bad guys, so he's running on that anti-corruption record, which, in New Jersey, is not bad. But you are saying he's not running on anything of substance?

FUND: There's no details yet. The Independent candidate, who is now at 12 percent in the polls, Christopher Daggett, has a plan which, on the surface, looks like it is going to cut taxes. Chris Christie doesn't have a response it to yet.

And in Virginia, I think Creigh Deeds has a problem because he has said, I will raise taxes to pay for transportation projects. Bob McDonald's response is, no, let's sell the state liquor stores instead. And that's proving very popular.


STRASSEL: I bet that's going over very well.


GIGOT: ... by selling a liquor store. I guess maybe in Virginia you can raise a lot.

FUND: They drink a lot.

HENNINGER: The White House is very alert to what the states are. They have involved themselves deeply in the Corzine campaign. They're signing off on his TV ads. They're watching polling. They take control of his polling. This is a big deal for Barack Obama's White House.

GIGOT: What do you think this means for the Obama agenda, Kim, if the Republicans do manage to win in both states? Is cap-and-trade, for example, that's dead for this Congress?

STRASSEL: That was already on life support. I think you finish that off with this. It goes back to what John said, this is key for health care. And it's why you see this desperate push by the White House to get legislation done, the health care legislation done and pushed through as quickly as they can. They don't want it hanging around past this November election. As John said, the Blue Dogs are going to use this as a barometer on the country's feeling for the Obama administration's agenda. If they feel the public is turning against it, they are less likely to put themselves up for this vote.

GIGOT: All right, Kim, thank you.

One more break. When we come back, our "Hits and Misses" of the week.


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

Dan, first to you.

HENNINGER: Paul, a Wall Street Journal columnist this week asked a group of experts which city they thought college graduates would be likely to migrate to in a post-recession atmosphere. Are you ready for this? Ties with Seattle for number one, Washington, D.C. Why? Washington is growing. Lot of lobbyists are going down there. They have 4,000 non-profit institutions. As the head of the D.C. Chamber of Commerce said, people are moving from Wall Street to K Street. There was a time when the rule of thumb in this country was, "Go west young man." Barack Obama has created a government gold rush. It's —


GIGOT: OK, John.

FUND: The agriculture bill has all the farm subsidies in it. This week, the House voted to have a 72-hour waiting period so members of Congress could put up the bill on the Internet. Everyone could read and make sure their farm subsidies are all right. That that sounds fine.

But when it comes to the health care bill, which is going to reorder one-sixths of our economy, Speaker Nancy Pelosi is holding back and refusing to have a vote on a 72-hour waiting period for the health care bill. There is such desperation to ram this through, the American people are not going to be able to read it.

GIGOT: All right, John.


STRASSEL: Someone needs to give a hit to U.S. authorities from moving to extradite Roman Polanski back to the United States. We've heard amazing, outrageous defenses from Hollywood of this film director who, 30 years ago, sexually assaulted a 13-year-old, admitted he did it, and then fled the country to avoid going to jail. The bottom line is, it doesn't matter that he's getting on in years. It doesn't matter this happened a long time ago. What matters is that we are a nation of laws. He is not above the law. He should go and have his time in court here like everybody else.

GIGOT: All right, thank you, Kim.

Finally, remember "cash for clunkers"? That was the federal program that paid you thousands to buy a new car if you turned in an older one. Well, it worked — for a few weeks. Automakers just reported their September sales however after "cash for clunkers" expired. What do you know, G.M. sales fell 45 percent; Chrysler, 40 percent; and Ford, 5 percent. All of which shows that the critics were right. All it did was steal sales from the future rather than lead to new production, much less to a revival of the auto industry. As always, the real clunkers are the folks in Congress who dreamed this up.


Thanks to all of your watching. We're glad to have you here and we hope to see you right here next week.

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