This is a rush transcript from "The Journal Editorial Report," November 6, 2010. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," historic gains give Republicans new clout in Washington, but will it be different this time around? We'll ask former and future Republican Senator Dan Coats.

Plus, lessons from the elections. What Tuesday taught us with the Tea Party candidates and why the Republican wave did not sweep the coast.

And the return of divided government. Now that Republicans have the House, what will they do with it?

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

Well, among the wins for the Republicans on Tuesday night were six Senate pick-ups, including the seat in Indiana, vacated by retiring Democrat Evan Bayh. In that race, Dan Coats defeated Democratic Congressman Brad Ellsworth, returning to the seat he left in 1999, after serving a decade in the Senate.

I spoke with Senator Coats earlier and what he thinks will be different this time?


SENATOR-ELECT DAN COATS, R-IND.: Paul, last time we were running relatively balanced budgets. We had a number of issues. But by the same token, this year, we're looking at an entirely different situation. From a fiscal standpoint, our government is really in tough shape. We're plunging into debt and spending money that we don't have. Clearly, we need to take bold action now. No more little incremental things. We've got to address the economic down turn and economic stagnation that we're currently in. Companies are not hiring. They are not buying new equipment. They are not expanding their plants.

The future of America, from an economic standpoint and growth absolutely has to be part of the equation here, along with stopping some excessive spending in Washington. We've got to get this country back on track. Everything flows from that, whether we support our military, foreign policy initiatives and many, many other domestic programs. If we don't get our economy in shape and get it in shape soon or at least in the target toward recovery, we're going to continue to have a lot of problems.

GIGOT: Now I'm told you have been saying to people, correct me if I'm wrong, that you think the United States Senate has to change the way it's been doing business. Is that right?

COATS: Clearly.

GIGOT: And how do you change it? They've still got that 60-vote filibuster rule, which they had when you were there, and that's a barrier to really bold action, is it not?

COATS: It is a barrier. At the very least we need to remove the 60-vote rule for bringing a bill to the floor and actually debating it and voting on it. The American people deserve that we are transparent with them, that we take one item at a time, that we register our yeas and our nays and be accountable to the American people for what we've done. There's been too much gathering at the end and throwing it into one big package, too much combining bills. And people say well I voted for it because I know it's got some bad stuff, but the good outweighs the bad. We need one issue, one time, one debate, one vote on an expedited schedule. There's just too much need for moving forward with action to address our serious economic situation and a number of other issues to not go forward on that basis. So I'm going to work to try to streamline the situation and move things forward.

GIGOT: Let me ask you about the debate on the Republican side that's already to emerge. The speaker presumptive, John Boehner says he wants an earmark ban, a moratorium. The minority leader in the Senate, Mitch McConnell says, no, he doesn't favor that. Who's side are you on?

COATS: There's the middle ground here. What I want, and it goes to the first answer that I gave you, I want a procedure, a process where something is vetted. It's discussed in committee and voted on, it's brought before the floor and people have an up or down vote on it. What I don't want are earmarks that are simply attached at the end or put into a bill and we only find out about it later. Every item, if it's controversial, ought to have the opportunity for us to say yes or no on. So there's a definition of earmark that I think needs to be stopped. And there's the definition of special projects that ought to be discussed, debated and voted on.

GIGOT: You were there in the 1990s when the Republicans tried to cut spending. And they were attacked by the Democrats for gutting school lunches and throwing grandma in the snow, trying to cut Medicare.


How do you cut spending when you go in, as Republicans want to do and you said you want to do, and avoid those kinds of attacks that ultimately did slow the Republican — Republicans back to a balanced budget in the 1990s?

COATS: Well, look, if I'm a Democrat, they ought to be looking at the results of the 2010 election. What the people want is action, real action on this spending. A super majority of people across the country expressed that desire on Tuesday evening.

I'm hoping that we can get past the silly stuff. You know, if you're going to reduce funding for national public television, it didn't mean the first thing you cut is "Sesame Street."


I hope we have some adult conversations about what's needed in this country, and about the seriousness of this financial plight we're in. If people aren't willing to step up to that, I think it's transparent to the public. We need to make our case and say, again, this deserves an adult discussion and adult debate and people to stand, show the American people where we stand. If not, they'll throw them out just as they did in 2010 or 2008 or 2006. The public wants action. They don't want this silliness.

GIGOT: All right, let me ask you one more question. If the president says, extend — if he's willing to extend the tax cuts just for one year on everybody, but just one year, do you take that deal?

COATS: No, I don't like that deal. It sends a signal to the job creators across the country that they've got a year. But then it's got — who knows what's coming down. It's uncertainty today in the economic picture about the future, what kind of taxes, regulations, mandates are going to be imposed on our businesses, the job creators of the country. All that does is perpetuates the uncertainty.

We need some certainty going forward as to what the policies will be relative to business in America. Are our corporate rates going to stay double the level of our competitors overseas? Are we going to load them up with restrictions and mandates, that they say, I have no voice, but to go overseas? Or are we going to make it business friendly? They need some assurance that, on the long-term going forward, we are going to have business-friendly policies that encourage staying in the United States, manufacturing here, providing jobs here, and that's not happening under this administration.

GIGOT: All right, Senator Coats, welcome back to Washington. We'll be watching.

COATS: Thank you.


GIGOT: When we come back, lessons from the election. What Tuesday taught us about Tea Party candidates and why the Republican wave did not sweep the coasts. Our panel tackles those topics and takes a look at the most important and underreported Republican sweep in the state legislatures next.


GIGOT: While Republican gains in Congress grabbed the headlines this week, perhaps the biggest wins on Tuesday came in state legislators where the GOP picked up a whopping 680 seats. Republicans now control both legislative chambers in 26 states, giving the party a big advantage coming to next year's House of Representatives redistricting process.

For more, I'm joined by Wall Street Journal columnist and deputy editor, Dan Henninger; Washington columnist, Kim Strassel; editorial board member, Jason Riley; and WSJ.com columnist, John Fund.

So, John, why are these gains in the legislators so significant?

JOHN FUND, WSJ.COM COLUMNIST: Because for the next 10 years, we're going to be governed by the district lines that are going to be drawn next year by the state legislatures. So this election is going to pick the legislators who literally will redraw the entire map. The fact that Republicans gained so many seats means they will have more control of the redistricting process than they've ever had. About 200 House seats will be in state where Republicans control all of the mapping.


FUND: Democrats have only about 60 seats where they control the maps.

GIGOT: And that's the difference between 2000, 1990 and 1980.

FUND: In 1980, the Republicans controlled the mapping in states with only five congressional seats.


And, Jason, in terms of governance, this gives the Republicans in these states a real opportunity to be laboratories for reform and take on these problems with pension and public employee pay and the rest of the things that are weighing down the states right now.

JASON RILEY, EDITORIAL BOARD MEMBER: We're talking about some big states here, Ohio, Pennsylvania, Michigan. They have pension problems and perhaps with the redistricting they'll be able to solve some.

GIGOT: All right.

Dan, there is a part of the country where this wave really just crashed on the border, and that's the West Coast and parts of the East Coast, California and New York. How do you explain that?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, I don't know. Maybe it has something to do with the wave lapping on California's shores all the time.

GIGOT: They wanted it on both sides.

HENNINGER: Right. There's several issues going on there. First of all, both states are heavily unionized with state workers. And certainly, I know in New York City, if you put your trash out to be picked up Tuesday morning, it didn't get picked up. They get the day off.


HENNINGER: They get the day off and it was still sitting there.

Another thing in California, which is really kind of interesting, is that 22 percent of the vote there, according to the exit polls, was Hispanic, and they voted 2-1 for Jerry Brown, and that suggests that Republicans continue to have a problem with Hispanic voters. They are going to have to make peace. California may be gone, but there are other states, New Mexico, Colorado, Nevada, where they've got to — New Mexico, Texas, where they're going to have to address that problem.

Also, Democratic voters outnumber Republicans in California by about two million voters.

GIGOT: And the party there has —


GIGOT: — the Republican Party.

HENNINGER: Meg Whitman got 1.8 million votes, fewer than Arnold Schwarzenegger in 2006. So there is a sense, I think, in which California is gone to the Republican Party. And New York is pretty much the same thing. You know, middle class people keep moving out.

GIGOT: That's the thing, I think. The economy — when the economy struggles, a lot of these workers in Hollywood and finance and tech, they make so much money that they don't care as much about tax rates as a lot of the middle class does. That hurts the economy and they move to Nevada, Utah, and the jobs go elsewhere.

KIM STRASSEL, WASHINGTON COLUMNIST: And those cultural elites you're talking about, they make up a much bigger portion of the states like New York and California than the rest of the country.

One other thing about this that has to be noted. California and New York are an example of the problems you got when you manage to make parts of industry an extension of the government. You know, look at California, one of the biggest disappointments with the fact that Prop 23 didn't pass. This was the initiative that would have halted this global warming business that they're doing for a couple of years.

GIGOT: They have their own cap-and-trade law and this would have essentially said we won't implement that until unemployment falls to 5.5 percent.

STRASSEL: The people promoting that initiative with outspent something like 4-1, the vast majority of that money coming from renewable energy companies, the exact same guys who are already getting subsidies to do this work for the states. So the taxpayers are basically funding these companies to work against this initiative.

GIGOT: Right.

FUND: One of the reasons conservatives want to rollback Obamacare, when you get the exchanges together in the next couple of years, it will also create what I call the health industrial complex.


FUND: A group of people who want more government control over health care because they're going to profit from it, and be the only beneficiaries from it.

GIGOT: Jason, what about New York State? You are from Buffalo. And Carl Paladino, the Republican candidate for governor, also from Buffalo, was a catastrophe for the Republicans.

RILEY: That's one of the lessons from Tuesday, is don't — don't nominate amateurs.


And it wasn't just Paladino in New York. You had Ken Buck in Colorado, Sharron Angle in Nevada, Christine O'Donnell in Delaware. These were bad candidates, and that matters. I mean, you contrast what happened to them to people like Marco Rubio in Florida, or Ron Johnson in Wisconsin, quality candidates, they got the job done. So it matters who you nominate.

GIGOT: Marco Rubio was said to be a Tea Party candidate, but he was a real professional, former speaker of the Florida House. He rode the Tea Party wave, but knew how to — but he was professional enough to know how to prevail.

Who gets the blame for some of the candidates that lost, Kim?

STRASSEL: Well, I mean, look, it's equal. The Tea Party were out there in some of these cases and they were promoting candidates that, in the end, were going to have a tough time winning. Christine O'Donnell is the number-one example of that. I would argue the National Republican Senatorial Committee bears a little bit of blame too. And, look, they had a good night.

GIGOT: But they didn't pick the three that lost.

STRASSEL: No, no. I'm talking about the people they got behind in the beginning. Some of their candidates in Nevada —


GIGOT: They were too establishment —

STRASSEL: Charlie Crist was —

GIGOT: No, wait a minute. Was your point that they were too much a part of the establishment —


GIGOT: — and they could not bring the Tea Party on board the way that Rubio was able to do?

STRASSEL: Some of the candidates they got behind initially, like Crist, for instance, down in Florida, just viewed by this public that wanted change and difference, as too establishment, too much the regular norm, and they were begging to be challenged. And when you had that challenge, sometimes you got good candidates, sometimes you got ones that weren't so great.

GIGOT: But I think the Tea Party is also responsible for picking some of these people who lost.

All right, still ahead, the Republican took back the House, now what? Our panel's advice to John Boehner, what he should and shouldn't do, when we come back.



REP. JOHN BOEHNER, (R-OHIO), HOUSE MINORITY LEADER: The American people have spoken. And I think this is pretty clear that the Obama-Pelosi agenda is being rejected by the American people. They want — as I said last night, they want the president to change course. And I think it's change course, we will.


GIGOT: John Boehner this week suggesting Republicans plan to set a new direction when they take charge of the House in January. With Democrats in control of the Senate and having the veto pen, that may be easier said than done.

OK, so, Jason, John Boehner made some news this week saying that he favors a ban on earmarks. Mitch McConnell doesn't think so. But does John Boehner have it right?

RILEY: I think he does, Paul. I think that's one of the lessons that — what happened on Tuesday. A lot of the people who won, ran on reining in spending, and this is a way to do so. And not because earmarks amount to that much money, all things considered, but it sends the message. It's symbolic and it's the right message.

GIGOT: They're willing to — it sends a message, they're willing to discipline themselves, while they're willing to cut government spending.

Dan —

HENNINGER: Well, this is one of the things they purport to stand for. And we all know that one of the benchmarks of conventional wisdom is going to put down for the Republican Party is whether they can, quote, unquote, "get along with Barack Obama." And normally, what that means for Republicans is selling out their principles. That's the last thing they can do at this point with this electorate. They have to make their principles clear. It doesn't mean they have to be crazy about it, but they have to put down their own markers so that their voters understand that they're going to defend those principles.

GIGOT: But I'll tell you what, Kim, what I heard this week is both Mitch McConnell and John Boehner making an attempt to dampen expectations, to say, look, we're not going to be able to deliver on everything we'd like to, because we don't control everything.

STRASSEL: But they have to.

GIGOT: Right?

STRASSEL: It's very smart, because they can't. They're not controlling government. They don't run the Senate. They don't run the White House. And this was one of the mistakes, after 1994, Newt Gingrich and others coming in and saying, OK, now we're going to change everything, and not being able to deliver on that process. So they've got to come out and be very clear with the Tea Party and other groups, what they can do.

FUND: They can deliver on an earmark ban.


GIGOT: Right.

FUND: And that, they should, because one of the lessons from this election is, you had a committee chairman who had served 30-odd years, Jim Oberstar, the king of pork and transportation, Ike Skelton, the kind of pork at the Pentagon, John Spratt, the king of pork in agriculture and budget issues, all of them went down in defeat. And they had brought millions of dollars of pork in their district, and it didn't matter.

GIGOT: Right.

RILEY: And I think that Obama will be looking to compromise in some areas for a couple of reasons. One, he wants to get reelected. And he did horribly. The Democrats did horribly with Independents on Tuesday. He needs to get the voters back in order to be reelected in 2012.

GIGOT: OK, but on what? On what are they likely to compromise on?

RILEY: Well, what you have to look at here is the Senate, and who's up in 2012. People in conservative-leaning states, you have Bill Nelson in Florida, and Claire McCaskill in Missouri, John Tester in Montana.

GIGOT: Right.

RILEY: These are folks that I think will be willing to compromise on some spending, and perhaps on some tax cut issues as well. So Obama will not only have the pressure to want to get reelected, he'll also have some pressure from the Democratic caucus.

GIGOT: But they're still—

RILEY: His own folks in the Senate.

GIGOT: But there's still 41 liberals in the Senate. Enough liberals to be able to stop anything that they want to stop, and let some of these Senate Democrats that Jason talked about vote with Republicans and kind of polish their moderate image, and yet still kill everything that Republicans do. So what should the House do? Do they pass bills and let them pile up on the Senate desk?

STRASSEL: No, they pass bills. I think they've got to pass what bills they can.

GIGOT: Should they?

STRASSEL: That's right, especially on core things they promised, like rolling back aspects of the Obama agenda, in particular health care, aspects of financial services, 1099, which is this part of health care that —

GIGOT: The small business reporting requirement.

STRASSEL: The reporting requirement. They send them to the Senate and see what they can pressure some Senators into doing.

FUND: There's another idea. The stimulus bill killed most of the welfare reforms that Bill Clinton signed into law in 1996. They were very popular and also very, very successful. The Republicans can vote out a restoration of those welfare reform rules and dare the Senate to turn them down. I think that would be a great polarizing issue.

GIGOT: So if you pile up these bills at the Senate, you pass these things, you show the Tea Party, look, we did what we promised in the House. You elected us, we did what we promised. Now then, the American people can say to the Senate, look — or they can look at what's happening in the Senate or what Barack Obama might veto, and say, look, you're going to have to make further change if you want to get that done.

HENNINGER: Yes, I agree with that. They're going to have to create some issues towards 2012, and the only way that they can do that is by challenging the Democrats on things like Obama-care. The Obamacare — it's not just symbolic. This is a bill, law, with substantive problems that are hurting the economy right now. They have to show a willingness to make an effort to try to defund the worst aspects of it.

FUND: And one of the ways you can do that is responsible use of the oversight process, holding hearings in the House on what is going wrong with Obamacare and also some of the problems the Obama administration has had in politicizing places like the Justice Department.

GIGOT: OK, John, thanks so much.

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


GIGOT: Time now for "Hits and Misses" of the week. This week, the best and the worst on the midterm elections.

Dan, first to you.

HENNINGER: Well, Paul, a hit, with fingers crossed, to John Boehner. One of the big questions is whether the speaker-elect really gets it about the forces that put this victory over. I was watching John Boehner do his acceptance speech and he started to cry. I thought this was kind of strange, but then I thought, you know, John Boehner is a shot and a beer guy from Cincinnati. The last thing he wants to do is cry in public. I'm going to go way out on a limb and say I think that John Boehner does understand the forces that put them there. And it will not be Republican business as usual in his House.



RILEY: A hit for two new congressmen, Tim Scott, who will the first black Republican congressman from South Carolina since Reconstruction.


RILEY: Alan West will be the first black Republican congressman from Florida since the 1870s and it's worth noting, Paul, that both were elected with backing from the supposedly racist Tea Party Movement, which might be of interest to the NAACP and others who have been dumping on the Tea Party.




FUND: Even where liberal incumbents won, the voters showed a conservative streak on ballot measures. Take Washington State, where Democrats won the top races, but 65 percent of voters turned down a state income tax and —

GIGOT: Sixty-five percent.

FUND: And that was backed by Bill Gates and the labor unions, Bill Gates, Sr. And they also approved a two-thirds requirement to pass any future tax increases.

GIGOT: Unlike California, which got rid of its two-thirds requirement —


— which will not be good for that state.

That's it for this week's edition of the "Journal Editorial Report." 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.

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