Obama heads off the tax cliff

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This is a rush transcript from "Journal Editorial Report," July 14, 2012. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," President Obama heads off the tax cliff. Will he take fellow Democrats and maybe some Republicans with him?

Plus, Mitt Romney addresses the NAACP to cheers and jeers. Other Republican nominees have skipped it. So was it worth his time?

And it is being hailed by some as the answer to the housing crisis, local government seizing underwater mortgages through eminent domain. But will that put a stop to foreclosures?


PRESIDENT BARACK OBAMA: I'm not proposing anything radical here. I just believe that anybody making over $250,000 a year should go back to the income tax rates we were paying under Bill Clinton.


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

That was President Obama on Monday invoking Bill Clinton in his call to raise taxes on Americans making more than $250,000 a year. He says his proposal isn't radical at all. So will congressional Democrats and maybe even some Republicans follow him off that tax cliff?

Let's ask Wall Street Journal columnist and deputy editor, Dan Henninger; Political Diary editor, Jason Riley; and columnist, Mary Anastasia O'Grady.

Mary, we have this huge tax cliff. Everybody agrees because of the expiring tax provisions, there would be a big potential hit in January on the economy. First of all, just substantively, is it already affecting economic growth?

MARY ANASTASIA O'GRADY, COLUMNIST: Oh, sure it is. The big word out there is uncertainty. People feel uncertain. By the way, you said $250,000. That's for a couple. It is actually $200,000 for individuals. There are a number of Democrats who say that is way too low, if you are going to raise taxes on people, which this is basically a tax increase. But the other problem is that people look at the lack of a permanency. In other words, he says I am going to extend this for one year.

GIGOT: Of course, those under $250,000 for one year.

O'GRADY: Yes. Yes. And that leaves you wondering, how is he going to pay for this huge deficit? One year is not going to -- it is not over after a year. If he is re-elected, I am pretty sure my taxes are going up, the taxes on my small business are going up, the cost to pay for Obama-care will put a bigger burden on it. All of that is making investors hold back I think.

GIGOT: This is the paradox, Dan. Why do this if you are the president if, as Mary suggest had -- and I agree with Mary, that it is already affecting the economy negatively -- why do this if it is going to hurt the economy between now and November?



Honestly. Honestly, Paul, I think it is purely a political ploy to re-elect him president. They have obviously got polls --


GIGOT: How can it help him if the economy continues is going down?


HENNINGER: You tell me.


What trumps that, in their minds, is the fact they have done polling that shows these attacks on the wealthy and the idea that his proposal to raise taxes on the wealthiest are polling well out in the country and in the swing states, end of story. As long as he can get it across the goal line, I don't think he cares how much economic wreckage --


GIGOT: Of course, if you ask people, the poll, raise taxes on the rich guy or me, which do you prefer? You always say the rich guy.


JASON RILEY, POLITICAL DIARY EDITOR: But Dan is right about the polls. There was an ABC News/Washington Post poll out recently that showed that on the issue of taxes, where Republicans usually out-perform Democrats, Romney and the president are performing evenly. Now if the president's internal polls are also showing that, perhaps that emboldened him to go forward with this tax plan. I think he thinks, "The American people trust me more on this issue. I can play this class warfare card and perhaps it will get me past November."

GIGOT: Is that a failure though of Mitt Romney's ability to make the tax argument? Because Jason is right, historically Republicans have had a big tax advantage. Particularly when they say I will raise taxes on somebody.

HENNINGER: I think in this point in time it is. Because I think, Paul, people out there -- with every passing week, more people start paying attention to a presidential election. It is July. I think people are getting nervous about the substance of what Obama has proposed. He gives the speech and he talks about millionaires ought to pay their fair share. Wait a minute, we are talking about people making $200,000 or $250,000. That is the upper middle class. Those are not wealthy people. I think this is beginning sinking in among the electorate that that proposal really touches the middle class. It is the level the middle class that people aspire getting into. You may be able to earn a million, but you can earn $250,000.

GIGOT: He also says we are just going back to the Bill Clinton tax rates. That's not accurate because it ignores the fact that, under his health care bill, there will be a 3.8 percent surcharge, new, on investment income, in particular. So that means capital gains will go up 60 percent. The dividend rate could triple to 45 percent from 15 percent. That has to have an impact on stocks, for example.

O'GRADY: This president is making a bet that his narrative about how the economy works, which is that rich people don't pay their fair share and they exploit the working class, he is betting the farm on that narrative.

GIGOT: But economics is out here. He is basically saying that consumption, tax cuts to promote consumption, the middle class will spend their share of the taxes, OK. But tax rates on investment of savings don't matter.


GIGOT: But isn't all consumption a function ultimately of savings and investment?

O'GRADY: Again, I think as you said to Dan, I think this is a failure of the Romney campaign. Without somebody counteracting the argument, I think it may be easy for the president, who is a much better political animal than Mitt Romney, to make the case that somehow you are not getting what you deserve because the rich are taking it.


RILEY: It is also a question of whether Republicans will stand their ground here. Two years ago, they did. And he was forced to extend the Bush tax cuts across the board. Will they do that again?


GIGOT: -- to the end of this year.

Well, so far, Jason, they have. They have basically been saying, look, this is a big, big tax increase on small business. They have been making the argument that Dan and Mary have made. They say it can have a negative impact on the economy. So far, I don't see any breaks in the lines here.


GIGOT: In fact, some of the Democrats in the Senate have demonstrated some real skittishness about voting for a big tax increase. One of the reasons Obama did this now was to basically to try to coalesce the Democrats, in the Senate in particular. A lot of those swing-state Democrats in Montana, Missouri, who are running for re-election, try to keep them united behind him.

I mean, what is the evidence -- I mean I guess the question is, will the growth argument trump the equity argument?

RILEY: Sure. What are we expecting, two percent growth for the rest of 2012?


GIGOT: If we are lucky.


GIGOT: If we're lucky.

RILEY: -- on job creators. Is that going to help accelerate economic growth? I don't think so. I hope the Republicans can make that argument.

GIGOT: All right, folks, thanks very much.

When we come back, Mitt Romney where you wouldn't expect him. He dared to speak to the liberal NAACP this week. Was it a mistake?


MITT ROMNEY, R-PRESIDENTIAL CANDIDATE: If our goal is jobs, we have to stop spending over a trillion dollars more than we take in every year. And so --


ROMNEY: And so to do that I am going to eliminate every nonessential expensive program I can find. That includes Obama-care, and I'm going to work to perform and save --



GIGOT: Well, he was booed for that comment, but cheered for others. Governor Mitt Romney went where other presidential candidates have not dared, to the NAACP's annual convention. Was it worth his time?

Dan, good idea or bad idea, given the reception he got?

HENNINGER: You know, Paul, I don't know whether it was intended, and I don't think he intended to elicit those boos, but I think Romney has benefited from doing this. First, he made a good-faith effort to speak to them. I think he is getting credit for that. I think actually the booing in an odd way is also causing him to gain some support out there with voters. I am beginning to get the feeling that Mitt Romney is being to gain some traction in the general electorate.

GIGOT: Why -- why are the boos good?

HENNINGER: Boos are not good. People -- some voters are resenting the fact that he was booed the way he was. He really did give it straight forward. He didn't exactly say, and if on the first day I am elected, I will repudiate ObamaCare. It was part of a sentence. There are voters out there starting to get upset not merely this, but the overall negativity of the Obama campaign.

GIGOT: Jason, does the NAACP really represent now most black Americans?

RILEY: No, it doesn't. And it hasn't. Not the interest of most black Americans. And it hasn't for quite some time. It is an arm of the Democratic National Committee.

GIGOT: It has a story in history through the civil rights movement.

RILEY: Sure.

GIGOT: No question.

RILEY: But that's history.


GIGOT: What is the agenda today?

RILEY: The agenda today is whatever the Democratic Party's agenda is. That's the problem. You mentioned other presidents not doing this. But George W. Bush did it, John McCain did it, presidential candidates did it. I think Republicans need to end this tradition of appearing before the NAACP to try and reach black voters. The type of black voters who may be open to voting Republican are not at NAACP conventions. You can go into communities and visit churches and visit small businesses, you can visit charter schools and so forth. You can advertise on black radio and black television programming. That's how you can go reach people. There is no need to go before groups like this and try and seek black votes that way. I don't think it has been a very good strategy.

GIGOT: What about getting credit? Does he get credit for going into the liberal group like this saying, look, here is my argument on health care. Here is my argument on education. Get credit for bravery for reaching out and saying these are my convictions. You need to hear these.

RILEY: Well, I just think his time and effort would be better spent on more persuadable people than who he is addressing there. That ultimately is the argument. Romney said all of the right things. Black unemployment is 14.4 percent.

GIGOT: Amazing.


GIGOT: Where the national rate is 8.2 percent.

RILEY: And he talked about how President Obama's policies are not helping matters. He talked about school choice. Poor black parents love school choice. But the NAACP doesn't. They love what the unions love, and the union loves what the Democrats love.

O'GRADY: Paul, there was no way hay could win here. He doesn't go he is ignoring the black community. He goes and he is confronting them with things they don't want to hear. And I agree with Jason. This doesn't represent the interest of anybody, the agenda that they would rather hear from him.

I thought he was great to talk about things like the fact that candidates cannot have it both ways. You can't talk about reform and education and protect the status quo of special interests. I am sure that hurt a lot of people in the establishment community. But I thought it was something he really had to say regardless.

And by the way, if you listen to the whole tape, the boos were just one small part, and there were a number of times where there were people applauding what he said.

GIGOT: Mitt Romney was not the only visitor to the NAACP this week. We had a couple of Obama visitors, Joe Biden and Attorney General Eric Holder. Let's listen to the attorney general.


ERIC HOLDER, U.S. ATTORNEY GENERAL: Many of those without IDs would have to travel great distances to get them. And some would struggle to pay for the documents they might need to obtain them. We call those poll taxes.


GIGOT: Jason, poll taxes, incendiary language echoing of the pre-civil rights era.

RILEY: This is evidence that the Obama campaign is worried about black turnout. They are trying to scare black people to the polls with rhetoric like this. There is no evidence that voter I.D. laws have suppressed black turnout in any election anywhere.

GIGOT: In fact, Texas provides free voter election certificates if you need them. You don't even have to pay for them.

RILEY: They are scared. Black voter registration is down from its 2008 levels. Obama is not worried that blacks are going to vote for Republicans. He is worried they will stay home. He's trying to get them out to the polls. He is throwing out red meat like this to do it and it is a shame.

HENNINGER: Let's note Vice President Biden as well. He went before the NAACP and said, can you imagine what a Romney attorney general might be? Can you imagine what a Romney head of the civil rights division might be, considering all of those rights that you people hold dear? This is race baiting in 2012. It is amazing to think that you will run for president on that basis right now. But they are doing it.

GIGOT: Doesn't seem to be paying a price for it politically so far.

O'GRADY: Not so far, but I think, as Jason points out, I mean, it is not something that people don't appreciate. They can see through it. And the thing is that when Barack Obama ran in 2008 he was appealing to all-Americans because of the fact that he refused to do that kind of race baiting.

GIGOT: To the better angels of our nature, those better angels are in hibernation.


When we come back, cities hit hard by foreclosures consider seizing underwater mortgages through eminent domain. Will that plan solve the housing crisis or make it worse?


GIGOT: The housing bust has produced some awful ideas, but this one might be the worst. Hit hard by foreclosure, San Bernardino County, California, and two of its largest cities are considering using eminent domain to seize underwater mortgages.

Wall Street Journal editorial board member, Mary Kissel, is here with the details.

Mary, when most think of eminent domain, they think of a city seizing homes to build a highway or bridge or some public space. How would eminent domain work in this case?

MARY KISSEL, EDITORIAL BOARD MEMBER: This company, called Mortgage Resolution Partners, in San Francisco, says we have mortgages worth more than the actual value of the homes in these California municipalities. Let's take that mortgage from the private investor and refinance it, so it will reduce the principal amount. And then we will repackage it with a government guarantee and then sell it to other private investors, and that will fix the housing market. That's the argument.

GIGOT: OK, who are the winners in this case? Obviously, the investors who get the mortgages would be a winner. The city might be a winner because they would argue, well, we have fewer foreclosures, prevent more foreclosures, therefore, less neighborhoods are in trouble. What about the homeowner?

KISSEL: It is a free lunch for the homeowner because the homeowner was underwater and suddenly, magically, they are not. But, Paul, this has very, very serious consequences.

GIGOT: Yes, well that -- hey, look, we are talking about a lot of winners here. Who are the losers?

KISSEL: Well, in the immediate term, the holders of the mortgage are the losers. So that is pension funds, mutual funds, even Fannie and Freddie. Remember, they are U.S. taxpayer-backed because the value of these mortgages is going to fall.

GIGOT: This is private property they are seizing?

KISSEL: It is taking. But also Remember, Paul, in the long-term, who in the world would ever invest their private capital in the mortgage market if you can't count on contracts? This will not solve the housing crisis. It will create more problems and it's going to further entrench government in housing.

GIGOT: The Constitution says such takings, as they are known, are legal as long as they are done for a public purpose and with just compensation. On those two points, especially the compensation point, what's wrong with it?

KISSEL: First of all, Mortgage Resolution Partners has incentives to underpay pay these investors --

GIGOT: This is the private company.

KISSEL: The private company. So just compensation is in the eyes of the beholder.

GIGOT: Would they determine the price or the city determine the price of what they pay the mortgage?

KISSEL: Well, this company in cahoots with the government would determine the price and then take the mortgage. Just compensation, we don't know. There are a couple of precedents here. There was a Hawaii case in the '80s where the state took property, and that's what they are pointing to.

But, you know, Paul, I'm sorry, it's -- you could argue for taking an interstate highway, but to take a private mortgage and leave the owner in the house and write down the principal, that is a big constitutional stress. And again, this is going to be in litigation for years. So the argument --

GIGOT: If it happens, people will sue.

KISSEL: Right. And that is going to help the housing market to be in litigation for years?

GIGOT: So more uncertainty.


O'GRADY: You know, Paul, there is a reason why this is happening in California. That's because, what happens here is that MRP will go to a judge in California and say, this is what we think the value of the contract is. Now, there is a reason why that mortgage has not been sold. It is current. Whoever lives in the home is paying the mortgage every month, and the bondholder, the person who holds the mortgage, thinks, OK, I am going to hold onto this because maybe the property market will come back or maybe this guy will pay all the way through to the maturity of the loan. But the MRP is going to take the mortgage to a judge and say, judge, this is what this home is worth right now. And this is why we want the mortgage written down. Since you have activist judges in California, there's a good chance they'll get away with it.

GIGOT: Might get away with it.

Dan, what about the implications of this going forward?

HENNINGER: The implications are enormous. It is somewhat analogous to extending the reach of the Commerce Clause. Eminent domain, as Mary just pointed out, normally is applied to bridges and other tangible things. This would be pushing the taking under eminent domain into assets like mortgage-backed securities, and there are no limits if the courts approved this interpretation of eminent domain.

GIGOT: Mary, have you been talking to all of the principals involved in this. Do you think this is actually going to happen?

KISSEL: Well, I think it could happen in California. Again, there are precedents from the California Supreme Court, in Hawaii that this MRP is pointing to in trying to convince these city and municipal officials to look to for justification.

GIGOT: You men this happened -- this happened before in Hawaii?

KISSEL: It did. It didn't exactly have the results the government at the time said it would. But, look, politicians want to look like they are doing something here. If there are a lot of winners and the private investors are the losers, it could happen.

GIGOT: OK. All right, Mary, thanks.

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


GIGOT: It is time for "Hits and Misses" of the week.


KISSEL: I am giving a miss to Gary Gensler, the federal regulator in charge of the Commodities Futures Trading Commission. The CFTC missed a more than billion dollar fraud at M.F. Global, or we think it is a fraud. And now they are missing another one at Peregrine Financial Group, the company that lost more than $200 million in customer money. It is a good reminder that the U.S. doesn't need more regulation. It needs smarter, more accountable regulators, and even then, they are not going to catch every crime. Investors beware.

GIGOT: OK, thanks.


HENNINGER: Paul, a big miss to all of us. We're the subject of a medical study this week that said people who sit for three hours a week are cutting two years off their lives. I mean, just two years for sitting? This is horrifying. I am not sure I believe it. I think we need to verify it. I think we should transfer some of the money in global warming studies to get to the bottom of this study.

GIGOT: All right.


O'GRADY: This is a miss for Harry Reid, who this week said we should burn the Olympic -- U.S. Olympic uniforms because they were made in China. OK, news flash for Harry Reid, economics is the allocation of "scarce resources." Now being in government, he doesn't understand that, but for the rest of the world, this is something that we have to pay attention to. And by the way, John Boehner has to share the miss because he also complained about it.

GIGOT: The House Republican Speaker.

And remember, if you have your own "Hit or Miss," please send it us at FoxNews.com. And follow us on Twitter @JERonFNC.

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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