Pressure builds on GOP to reach final tax reform deal

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Pressure builds on GOP to reach final tax reform deal

Conference member Sen. Pat Toomey weighs in on what still needs to be sorted out on 'Journal Editorial Report.'

This is a rush transcript from "Journal Editorial Report," December 9, 2017. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

SEN. AL FRANKEN, D-MINN.: Today, I'm announcing that in the coming weeks, I will be resigning as a member of the United States Senate. I, of all people, am aware that there is some irony in the fact that I am leaving while a man who has bragged on tape about his history of sexual assault sits in the Oval Office, and the man who has repeatedly preyed on young girls' campaigns for the Senate with a full support of his party.

(END VIDEO CLIP)

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

Minnesota Senator Al Franken defiant Thursday as he announced that he would resign in the coming weeks amid allegations of sexual misconduct. Franken, one of three members of Congress to step down this week. Democratic Congressman John Conyers of Michigan and Arizona Republican Trent Franks also announced they are leaving the House.

So as resignations come as President Trump and the Republican National Committee throw their support behind Senate Candidate Roy Moore in Tuesday's special election in Alabama, despite multiple claims of improper sexual contact with girls as young as 14.

(END VIDEO CLIP)

PRESIDENT DONALD TRUMP: We can't afford to have a liberal Democrat who is completely controlled by Nancy Pelosi and Chuck Schumer. We can't do it.

(CHEERING)

TRUMP: We need somebody in that Senate seat who will vote for our Make America Great Again agenda.

Get out and vote for Roy Moore.

(CHEERING)

(END VIDEO CLIP)

GIGOT: Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger, columnist, Kim Strassel, editorial writer, Kate Bachelder Odell, and columnist, Bill McGurn.

Kim, it wasn't too long ago that Nancy Pelosi was calling John Conyers an icon, urging due process. Then, suddenly, boom, he's got to go. It wasn't too long ago the Senate Democrats were silent about Franken or saying, look, go to the Ethics Committee. Now they say this week he's got to go. Why have they lost support from their party?

KIM STRASSEL, WASHINGTON COLUMNIST: Look, I think two things are happening here. One, the bonfire continues to rage and there was more and more pressure, especially coming from female members of their party, for there to be a zero-tolerance policy against any of this. Secondly, though, and a little bit more cynically, I think they also saw a political opportunity here. It may not be the right thing to do, but they got rid of their own, and it does put them looking a lot rosier in this situation than does the GOP and its continued support for Roy Moore.

GIGOT: So I guess get rid of the baggage of the Bill Clinton legacy, Kate? And what did you make of Al Franken's response, his speech, his exit speech?

KATE BACHELDER ODELL, EDITORIAL WRITER: Well, you know, probably the least contrite resignation of shame speech of all time. I mean he essentially started at the beginning by doubling down that he's never treated any women appropriately, and he respects his female colleagues. So I guess the question that leaves us with is, if he's innocent, why not state and fight the charges and stand up for his reputation?

GIGOT: And your answer is?

ODELL: I don't know.

(LAUGHTER)

I don't try to define the soul of Al Franken. But he should try to defend those allegations because we could reach a point where someone is getting accused of things that are false.

GIGOT: Basically, he said, Bill, look, I didn't do anything wrong. I only have respect for women and admiration for women. I'm a great champion for women causes, but I'm resigning anyway.

BILL MCGURN, COLUMNIST: And he said he would be vindicated in the Ethics Committee.

GIGOT: That's right.

MCGURN: One of the problems is these accusations is there's no way to adjudicate it. Leave it to the voters, in some sense. One difference between Moore and the president is the president people knew these charges and elected him president. People didn't' really know the --

GIGOT: I would argue one other thing, Bill. He was running against somebody who had spent a career defending her husband against sexual harassment charges.

MCGURN: Right.

GIGOT: So the voter is left to say, well, six and one half a dozen of the other on that issue.

MCGURN: I think resignation could be a very honorable thing. I think too often it's the thing people don't do. Just go away quietly, you know, we all make mistakes and so forth. In this case, if he really believes what he says that he is innocent, it would be vindicated, there is a process in the Senate for adjudicating these things, the Ethics Committee. I think that's a disservice to the people of Minnesota, assuming he's telling the truth. And it is a disservice to other people who may be falsely accused not to go through the process and show you can be vindicated; right?

GIGOT: But that suggests that political momentum, he basically was forced out by his colleagues.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes, to some extent he was. I mean, for sure. You know, Bill is trying to describe a situation here in which you take these accusations seriously, deal with them, a person is allowed to withdraw, go back into private life. Consider the spectacle that's taking place, a sort of parallel universes between politics and the real world, the outside world. Harvey Weinstein was accused of very serious accusations of sexual abuse. There have been others.

GIGOT: He might be indicted.

HENNINGER: Yes. He might be indicated. And there have been other men who have been accused, resigned and been fired. The world is trying to come to grips with this and deal with it. Meanwhile, in the world of politics, it simply becomes a political weapon. Look, our guys have resigned. You have got Donald Trump and Roy Moore down in Alabama. People have to vote against your side because your side won't, you know, make people pull back like that. And it's just -- as always, politics reduces it to the lowest common denominator.

GIGOT: Where does this leave, Kate, Republicans, who are supporting Roy Moore and the president this week left no doubt in anyone's mind about who he's supporting?

ODELL: Right. I mean, Democrats could be politically cynical here and also be right on the merits. I wonder if comparing Roy Moore to Al Franken is even fair to Franken given that Moore's allegations involve very young teenage women. This is a distinction that I think is important. And that's a larger point in all of this, is that we've grouped these huge groups of people together, Harvey Weinstein, Al Franken, Glenn Thrust, other reporters, and there are --

GIGOT: Very different circumstances.

ODELL: -- very different circumstances surrounding all these accusations that are never taken seriously.

GIGOT: So, Kim, where does this leave the Republicans in Alabama? I guess the Alabama voters have to decide whether they want to, on the one hand, lose a Senate seat, if they vote for the Democrat, or stay home, and on the other hand, wrapping Judge Moore around the neck of every Republican candidate in 2018, if he wins?

STRASSEL: Look, and I think what makes it even harder is that there's a lot of other things in play down here. I think Alabamans feel under attack by a lot of the liberal media and the late-night talk show hosts. A lot of them have bought into the Steve Bannon line that this is about an insurgent Republican versus an establishment. And in some regards, some of the sexual harassment claims have also moved to the side. Alabamans are making their decisions based on entirely other reasons, too.

GIGOT: All right. Thank you all.

When we come back, the House and Senate vote to send their tax bills to Congress as pressure builds on Republicans to reach a final deal. So what still needs to be sorted out, and is the 20 percent corporate rate up for negotiation? We will ask one of the conference members, Senator Pat Toomey, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

TRUMP: I call it the mixer. It's in conference right now, but I call it the mixer. I think when it comes out, it is going to be a beautiful mix. There are things that I like better in the Senate bill. There are things that I like better in the House bill. I think when they come out, we will have some new additions and we will have the best of each. I think we're going to have a fantastic tax bill.

(END VIDEO CLIP)

GIGOT: President Trump Wednesday promising a fantastic final bill, as lawmakers in the House and Senate sit down to iron out the differences between the tax plans each chamber passed.

Pennsylvania Senator Pat Toomey was tapped by Majority Leader Mitch McConnell this week to be part of that conference committee. He joins me now.

Welcome, Senator.

I know you played a big part in writing the Senate bill. So the president said last weekend that 22 percent on the top corporate rate would be possible after saying for months that 20 percent was his real target. So is 22 percent possible in the end?

SEN. PAT TOOMEY, R-PA.Paul, it is my hope that we will be able to hold to the 20 percent that we have in both the House and the Senate bills. We've got a lot of things to work out. There are differences, and there are many demands coming from my quarters. So I can't guarantee that it ends at 20, but there's a very strong desire on the part of most of the conferees I think to keep to 20.

GIGOT: All right. The other criticism -- this is that I hear from Republicans around the country. My email is filling up, as maybe yours is too. Is because you're taking away the state and local tax deduction, which I think is good policy, but nonetheless, it means that in high-tax states, there's some people who are going to have to pay more. But you're not compensating for that by lowering the top income tax rate, that you're raising taxes on a lot of people. What's your response to that?

TOOMEY: Well, it is a little more complicated than that, Paul. And one of the facts that mitigate against the loss in the value of the state and local tax deduction, which I agree with you, I think it is good policy to stop forcing low-tax jurisdictions to subsidize high tax jurisdictions, but what's the net effect? Sure, you lose some value if you lose the deductibility. But keep in mind, we take the -- the top bracket does not kick in as low an income level under our bill as it does under current law. And specifically, the point at which that highest rate, which in the Senate bill is 38.5 - 38.5 percent kicks in is not until a couple filing jointly $1 million income. So as opposed, a half a million dollars of additional income being taxed at the lower rate of 35, rather than 38.5, that had to be taken into consideration. If your income is over a million --

GIGOT: OK.

TOOMEY: -- then, yes, I think you could make the case that you've lost some of -- the deduction you have lost is greater than the rate reduction you have received. But people whose income is over a million very typically will have other sources of income as well, as you know, passive income, pass-through income, which does get a significant reduction, so all those factors really should be considered.

GIGOT: So your contention would be that the vast majority of people, even in high-tech states, will get some kind of net tax reduction?

TOOMEY: I believe that's correct.

GIGOT: OK. I guess the other argument is that you're making this tax reform, it's a big tax reform, very ambitious, but if you don't get the top tax rate down this time, and you reduce it in the Senate bill by 1.1 percentage point which, is a lot more than the House does, which is zero.

TOOMEY: Yes.

GIGOT: You at least --

(CROSSTALK)

TOOMEY: Well, the House goes actually in the opposite direction.

GIGOT: That's right, with so called bubble bracket for some taxpayers.

TOOMEY: Right.

GIGOT: But if you don't cut the top rate more this time, because this doubling the standard deduction and adding to the child credit, you are taking a lot of people off the rolls, the tax rolls, the income tax rolls, that you may never, ever get down any lower than what it is now if you don't go any lower now.

TOOMEY: Yes, look, it's very hard to predict the political future. I think there is some risk of that, right? What happens whenever the Democrats change the tax code, they make it more progressive, and then Republicans leave it with the progressivity it had before or sometimes go even further in that direction.

GIGOT: Right.

TOOMEY: I do think that's a problem. It is a one-way ratchet, it seems. Although I think that with Republicans in control of the government, we can make a perfectly legitimate argument for across-the-board percentage reduction in rates, and that would of course help everybody, and I hope that will always remain a possibility.

GIGOT: OK. All right. A couple of other contentious issues, one being the death tax. House repealed it after five years. You don't. Senate going to prevail on that?

TOOMEY: Too early to say. You know, it is one of the moving pieces. I would love to get rid of the death tax entirely. That's the right policy in my view. But there -- you know, Paul, we have got a limited amount of revenue we can forego in this plan, given the budget rules we have to live with. It scores as a big loss of revenue if we eliminate it completely. It is on a list of things I would like to get to, but it is too soon to know.

GIGOT: On the other hand, the Senate has the Obama care mandate, the individual mandate repealed. The House bill does not. The Senate going to prevail on that one? That saves you money.

TOOMEY: Yes, it does. And not only does it save us money, it saves us money in the first 10 years, which we call the budget window. But it also continues to save after that, which helps to offset the lost revenue from a lower corporate rate. What it does, the net effect, Paul, is it helps us to make the corporate reforms permanent. So it is really, really important policy in terms of its impact on the tax side. But it is also very good policy in and of itself. It is outrageous that the government forces Americans to buy a product that they don't want to buy. We eliminate the tax penalty associated with failure to do so. I think there's broad support for this in the House, and I really hope that the Senate provision prevails.

GIGOT: All right. Thank you, Senator. Appreciate you being here. We will look at the details when that bill emerges. Thanks.

TOOMEY: Thanks, Paul.

GIGOT: When we come back, as Republicans try to merge the House and Senate bills, GOP lawmakers from high-tax states hear voter backlash over ending the state and local tax deduction. So can a deal be struck to bring them on board?

(COMMERCIAL BREAK)

GIGOT: As House and Senate Republicans scramble to deliver a final tax bill to President Trump's desk before Christmas, GOP lawmakers from high-tax states are facing constituents angry at the prospect of ending the state and local tax deductions. So can a deal be struck to bring those members along and give taxpayers relief?

We're back with Dan Henninger, Kim Strassel, Kate Bachelder Odell, and Bill McGurn.

Kate, you heard Senator Toomey say that where this is going, obviously, a lot of things in play. What do you make of his argument that not reducing that top rate but getting rid of the state and local tax deduction is not that big political problem?

ODELL: Well, I think he was saying that it is, in some sense, a political problem because the Republican consensus has been to eliminate these carve outs, like the state and local deduction, in exchange for lower rates. And what the Senate has done here is give some lower rates to people who have business income, but not lower rate, not significantly lower rates for people who have wage income, like you and I.

(CROSSTALK)

GIGOT: Or the professionals, who don't -- you know, doctors, lawyers, or corporate, business, executives, who you know, make a fair bit of money for a few years.

ODELL: Right. I mean, one thing to remember is that a lot of people who claim a million dollars on their tax returns only do it one time. So it is not as if we're saving the same class of individuals over and over. I think it remains probably the largest deficiency in the bill, because the more you earn, the more likely you are to itemize and claim that deduction.

GIGOT: We should point out that Senator Toomey has been an advocate of the lower rate. He has been the point man in negotiations and he personally supports it. It is just that a lot of other members who are problematic.

ODELL: Right, you have everyone raising their hand at this point for something or another. I think maybe you could trade a little more rate relief for something else, but then if you do that, you invite a lot of people back to the table.

(CROSSTALK)

HENNINGER: Consider, as well, Paul, is this a Republican bill or Democratic bill? The Republican idea is that they want to get as much growth into the economy as they can by doing tax reform.

GIGOT: Right.

HENNINGER: And part of that was eliminating the state and local tax deduction. Big loss for people living in places like California and Texas. All right, you take --

(CROSSTALK)

GIGOT: New York. Not so much Texas.

HENNINGER: Not Texas. You take that hit, but then the deal was you would drop the top rate, say, from 39 down to 35 because --

(CROSSTALK)

GIGOT: To compensate

HENNINGER: To compensate, as a tradeoff. Look, the people who are being affected at that upper rate are not just tax revenue sponges, they are productive members of the economy. And so the idea the Republicans should be arguing is they are getting tax reform, too, rather the Democratic argument that we simply tax the rich.

MCGURN: Paul, I think, the citizen of peoples of republic New Jersey-stan, according to Tax Foundation, we're 50th in business taxes.

GIGOT: Congratulations, Bill.

MCGURN: Forty-ninth in personal income tax.

GIGOT: Even better.

MCGURN: Number one in revenue collected per capita on property taxes. A lot of that anger is misplaced. What we should be doing, people in my state, we should be marching on Trenton, not on --

(LAUGHTER)

What we want is a clean bill with fewer subsidies. And if we're angry, we're angry because we have to pay more of the real cost for what our states are doing. So I don't really buy the argument that it's -- that the government -- federal government is taking away something. If there's anger, it should be at the states that give us the high taxes and put people in this predicament.

GIGOT: Yes, but if the result is you still end up paying more taxes --

MCGURN: It's a more honest system because we're paying for the government we've chosen in our states, right?

GIGOT: OK, Kim, what else? I talked to Senator Toomey about the estate tax. I think that will stay. The Senate will prevail on that. The mortgage interest deduction also in play. The House bill reduces that to a half million dollars from a million. The Senate does not. Who is going to prevail there?

STRASSEL: Well, I think that's the other really big one. You heard Kevin McCarthy, one of the leaders in the House, come out and say that that was something that was very important. The Senate bill leaves the mortgage interest deduction capped at a million, which is what it is in existing law. So now you have that entire constituency definitely prodded by special interests, you know, like the realtors, pushing to keep it. But that's also an expensive provision. And what we're coming up against here, Paul, is with everybody coming back to the table, there isn't a lot of place to drum up revenue. And the big risk here is that you do end up slipping on that corporate rate, going back to 22 percent. And then you're in the same situation. Handouts here and there, a messy tax code, and not the growth that you need.

GIGOT: Yes, Kate, not going to cut the individual top rate, then giving back 22 percent to the corporate rate takes away one of the better -- the best part of the bill.

ODELL: Right, and where there's the most consensus among all parties that it will be a 20 percent rate. I mean, if we remember, back when the Senate passed its bill, Marco Rubio and Mike Lee proposed an amendment to expand the child tax credit in exchange for -- I think, it ended at 20.94, but it started at 22.

GIGOT: Twenty-two.

ODELL: They were looking for pay-fors. It's really a political question. If we raise it for one priority, that would make the bill better and fix a fundamental defect with the bill, do we invite other people to say, well, how about a corporate rate of 23, 24? Then you're really eroding the main point of the reform

GIGOT: OK, thank you all.

Still ahead, FBI Director Christopher Wray faces a grilling on Capitol Hill amid Republican concerns of bias in the Russia probe.

(BEGIN VIDEO CLIP)

(BEGIN VIDEO CLIP)

REP. JIM JORDAN, R-OHIO: If you kicked everybody off Mueller's team who is anti-Trump, I don't think there would be anybody left.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

REP. BOB GOODLATTE, R-VA.: It is absolutely unacceptable for FBI employees to permit their own political predilections to contaminate any investigation. Even the appearance of impropriety will devastate the FBI's reputation.

CHRISTOPHER WRAY, FBI DIRECTOR: Do we make mistakes? You bet we make mistakes. When that independent fact finding is complete, we will hold our folks accountable, if that's appropriate.

(END VIDEO CLIP)

GIGOT: FBI Director Christopher Wray faced a grilling on Capitol Hill Thursday amid Republican concerns of an anti-Trump bias at the law enforcement agency. Peter Strzok, a top FBI agent, appointed to the Mueller probe, was reassigned this summer after it was discovered he sent texts critical of the president to his mistress, an FBI lawyer. Strzok is also said to be behind former FBI Director James Comey's decision to characterize Hillary Clinton as "extremely careless" in her use of a private email server, rather than "grossly negligent," the language used in his original draft.

We're back with Dan Henninger, Kim Strassel, and Bill McGurn.

So, Bill, why should we care about this, about this Peter Strzok news?

BILL MCGURN, COLUMNIST: Well, partly we should care. This is the most important investigation in the United States today affecting the fate of an administration. When Mr. Mueller started this investigation, he hired a lot of people that had donated to the Hillary Clinton campaign. And that's not disqualifying legally or anything. I think it was imprudent. Didn't have a single Trump contributor in there. So he created an impression. And now we're seeing this with --

(CROSSTALK)

GIGOT: Impression of partisanship?

MCGURN: Impression of partisanship. And we're seeing this with, not just Peter Strzok. I mean, we don't know what those messages are. You know, they say pro Hillary, anti-Trump, like it's one message. He has 10,000 messages with this woman. I would like to see what those are.

We also have Andrew Weissman, one of the lead prosecutors. We were told, what a professional he was. It turns out he was applauding Sally Yates, an executive appointee, for defying an order from the president.

GIGOT: An Obama appointee.

MCGURN: An Obama appointee.

GIGOT: A holdover, and acting during the transition.

MCGURN: So I think apart from the - and I would extend this to Mr. Wray and his testimony. He just sort of said in general the FBI has made up of many good men and women. Of course, no one doubts that. But the constitutional suppositions that he can deny Congress information that it seeks about the running of the FBI, and that Congress must defer to an inspector general and a special counsel, that's as dubious, I think, as Mr. Weissman's contention.

GIGOT: Dan, I think the special counsel's defenders would say, look, reassigned Strzok, acted with dispatch. And as Bill suggested, you know, I mean, look, every prosecutor has his own personal political views and that doesn't disqualify them from behaving professionally, and Mueller is at the top and he can make that judgment. What's your response to that?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: My response to that is that Robert Mueller has got his assignment. He's doing it. Director -- FBI Director Christopher Wray just appears before the congressional committee and is defending, as Bill says, there's some 13,000 FBI agents. I think they are underestimating the extent to which the American people or at least a lot of the people, especially the ones who voted for Donald Trump, feel that there is an imbalance here.

Look, the investigation of Donald Trump goes forward. It is public. Whatever Hillary Clinton did with the server and the rest of it, the Clinton Foundation, seems to have fallen down the memory hole. Director Wray's position is the inspector general of the FBI, Michael Horowitz, is investigating all that. And while all that goes on, since January, in silence, you have got this public attack going on against the president. And I think they are underestimating the extent to which the FBI's reputation and that of the Justice Department is beginning to be damaged by that imbalance.

GIGOT: All the more so, Kim, because you've got the FBI playing a role in the investigation of the Trump -- of Trump officials in the 2016 campaign. So we know they had some role with the Steele dossier, either relying on it, perhaps, as the basis for issuing wiretap requests to the FISA court. That should be -- if you care, and you're an American citizen, and you really want to get to the bottom of what happened with Russia and the United States in the election, then let's investigate all of it, not just part of it. And the question is, can the Mueller special counsel probe investigate the FBI credibly and fairly?

KIM STRASSEL, WASHINGTON COLUMNIST: Right. This is why Strzok really matters and that he was at the center of all of this, not just the Hillary Clinton investigation, but the counterintelligence probe into Trump and Russia. So there are legitimate questions what role he played with the dossier and the FISA court.

I think that this gets to what you just said, Mueller, can he legitimately look at this? And this is the real outrage, too, of the Strzok news. Yes, true, he fired him -- not fired him, demoted him when he found out about it. But he, nonetheless, did not tell Congress, and he knows that Congress is looking into this question. Because presumably he knew it would undermine the credibility of his special counsel probe. But I think that that does call into question, if he isn't even going to tell Congress that he's got situations like this, can we really expect him to be investigating many of the very people who are on his team who were back at DOJ and FBI, when all of this was going on?

GIGOT: What recourse, Bill, does Congress have if they won't cooperate and Wray goes up there and says I'm sorry I can't do anything --

(CROSSTALK)

MCGURN: A lot of resource. They can hold people in contempt. They can impeach the FBI director. I think they should have done it to the IRS commissioner on the way out. And they are paying the price for not having done it. They can cut budgets. There is a lot of things. And I think Congress needs to --

(CROSSTALK)

GIGOT: What would contempt mean?

MCGURN: Contempt would be a finding. First, the committee would have to hold someone in contempt and then the whole House. Paul Ryan did suggest if they continue to play games -- because, as Kim said, Congress was not only looking into this, but had subpoenaed this information, and Mr. Mueller and Mr. Wray didn't make it forthcoming. So there's a lot of things.

Look, I would say Donald Trump misspoke. He shouldn't have said go easy on Flynn. He should say go as easy on Flynn as you do on Huma Abedin and Cheryl Mills and Hillary Clinton.

GIGOT: Well, that's a bigger subject.

Still ahead, President Trump makes good on a campaign pledge and recognizes Jerusalem as the capital of Israel. Former U.N. Ambassador John Bolton is here with a look at the international reaction, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

TRUMP: I have determined that it is time to officially recognize Jerusalem as the capital of Israel. While previous presidents have made this a major campaign promise, they failed to deliver. Today, I am delivering.

(END VIDEO CLIP)

GIGOT: That was President Trump Wednesday fulfilling a campaign pledge in announcing that the United States would move its embassy in Israel to Jerusalem and recognize the historic city as the capital of the Jewish state. Critics say the move only serves to anger Israel's neighbors and further complicate the notoriously troubled Middle East peace process.

John Bolton is the former U.S. ambassador to the United Nations and a FOX News contributor.

Ambassador, welcome.

Just as a matter of policy, do you agree with the move to the embassy?

JOHN BOLTON, FOX NEWS CONTRIBUTOR: Well, I do agree with it. I think it is the right thing to do. Look, from America's perspective, this simply normalizes the condition that exists in almost 190 other countries where we have diplomatic relations, namely that our diplomats work in the capital city, the country to which they are accredited. And I think it also sends a significant signal internationally, not just domestically, about President Trump and what he says on the campaign trail.

GIGOT: OK.

BOLTON: We've been intimidated for decades by the threat of violence and he didn't let it intimidate him.

GIGOT: But, nonetheless, the Arab neighbors are up in arms protesting. And there's a suggestion that this might not have been the best time for it, when Israel and the Saudis, for example, have been getting closer together because of their shared concern about Iran. What do you make of the Arab opposition here?

BOLTON: Well, look, there are a thousand reasons not to do this, given by the people who oppose it. I guess hoping that, you know, if the United States never acknowledges that Israel has a capital city, maybe Israel won't exist at some point either. And the argument of not now, you know, sometimes in diplomatic lingo not now means not ever. And I think that's on the minds of some. It's early to really to say exactly what the response across the Middle East will be. There's evidence already that some of the demonstrations and violence are being provoked by Iran to stoke tensions in the region/

But I say again, when the United States succumbs to threats of violence, it simply encourages people to believe that might work elsewhere.

GIGOT: So the signal that Trump is sending that he's going to honor his campaign pledge, number one, and that he's going to back a close ally like Israel, do you think Trump -- any protests among the Arabs in terms of its impact about American credibility, is that the basic argument?

BOLTON: I think that is an argument to some of the opposition. Look, the people have said that this somehow would compromise negotiations over the final status of Jerusalem. It absolutely will not. The president said that. Nobody has ever seriously recommended that the physical location of the embassy be anywhere other than on territory that's undeniably Israeli. Will it affect the larger peace negotiations? It is too soon to tell. But one can ask if the peace negotiations are such a delicate snow flake that building a building somewhere is going to affect them, you have to wonder how serious they were to begin with.

GIGOT: All right. Let's talk about that. Jared Kushner, the president's son-in-law, is negotiating, trying to negotiate between -- broker between the Israelis and Palestinians, get the peace process back in motion. You know, having served in previous administrations, every president recently has tried this. Every president has failed. What do you make of -- Trump says we're going to succeed this time. What do you make of where those negotiations stand now?

BOLTON: Well, look, it's an enormous hill to climb. There's no doubt about it. But it's also the case, unfortunately, because of developments in the region, namely the rise of Iran, the Iranian nuclear weapons program, its support for terrorism, that a lot of structures and relationships that have existed for decades are now in flux. We've seen Russia re-enter the Middle East in a significant way for the first time since the 1970s. So I think a lot of the old verities here are coming into question. And a move like this, if it does nothing else, recognizes reality. The president made that point. It pops a lot of illusions. But precisely because peace is so complicated, so hard to attain, there's no chance you can build peace on soap bubbles. So I think by clearing away a lot of the illusions that may be, I don't know, we can make Jerusalem a separate city under U.N. authority, dating back to the idea of the 1947 original resolution partitioning the British Palestinian mandate, it's all hot air. And saying that I think is the right thing to do.

GIGOT: All right. So what message should the Palestinians take away from this, if they want U.S. support for a deal?

BOLTON: One, Donald Trump is not Barack Obama. Number two, we are going to act in America's national interests. And that means putting our diplomats in capital cities, rather than someplace else. And if they want to get serious, give up some of the illusions that they've had that they can create facts on the ground in the Middle East in the halls of the United Nations, the capitals of Europe and elsewhere. And this, by the way, is a signal to Europeans as well that these old verities are disappearing.

GIGOT: All right, Ambassador Bolton, thanks for being here. Appreciate it.

BOLTON: Glad to do it.

GIGOT: When we come back, the Supreme Court takes up one of the highest profile cases of its term with oral arguments this week in the case of a Colorado baker who refused to bake a wedding cake for a same-sex couple.

(BEGIN VIDEO CLIP)

JACK PHILLIPS, OWNER, MASTERPIECE CAKE SHOP: I serve everybody that comes in, gay, straight, Catholic, Muslim, atheist. I welcome everybody into my shop. I just don't create cakes for every event that's presented to me.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PHILLIPS: It's hard to believe that the government is forcing me to choose between providing for my family and employees and violating my relationship with God. That is not freedom. That is not tolerance.

(END VIDEO CLIP)

GIGOT: The Supreme Court taking up one of the most closely watched cases of the term, with the justices hearing arguments this week in the case of Colorado baker, Jack Phillips, who was charged with discrimination for refusing to make a wedding cake for a same-sex couple.

Wall Street Journal editorial board member, Allysia Finley, has been following the case for us.

Allysia, what's at stake? What are the contending values in this case?

ALLYSIA FINLEY, EDITORIAL BOARD MEMBER: On one hand, you have the government's interest in promoting social equality. On the other hand, you have an individual's ability to express his own religious beliefs or exercise his religious beliefs.

GIGOT: Two very fundamental American purposes at stake.

FINLEY: Well, that's exactly right.

GIGOT: Are they in conflict really, do you think?

FINLEY: No, I think --

(CROSSTALK)

GIGOT: Ultimately?

FINLEY: No, ultimately, I think you can have accommodations that would enable people to exercise their religion as well as allow same-sex couples to get married.

GIGOT: What about the argument from the people who want -- who said he's guilty of discrimination, Phillips? That this is like a case in the south, for example, during Jim Crow when racists denied the ability of African- Americans to sit in a diner or ride a bus?

FINLEY: This has nothing to do with discrimination based on sexual orientation. The cake baker had offered to sell the couple any baked goods off the shelf --

(CROSSTALK)

FINLEY: -- just not to custom make a wedding cake, to participate in the wedding ceremony of the same-sex couple.

What's interesting is actually -- this was actually in 2012 before same-sex marriage was legal in Colorado. This was for a Massachusetts couple. If they walked in and asked to get married in Colorado, they couldn't do it.

GIGOT: OK, but, nonetheless, he said, I'm not going to serve you a wedding cake that I make myself. And he based, on part, on his artistic expression. Right?

FINLEY: Right. I think there was some pushback among the liberal justices on the court.

(CROSSTALK)

FINLEY: And Justice Kennedy asking, well, if you're a baker, what about a makeup artist? You know, what about a chef? Couldn't a chef claim that same exemption based on free speech grounds?

GIGOT: What is his stronger argument?

FINELY: I think it is the free exercise of religion and the fact this is not a neutral applicable law.

GIGOT: What do you mean by that?

FINLEY: Well, basically, the state has said that, for instance, a baker -- three bakers were allowed to refuse their services to a religious customer who wanted to bake a cake that criticized same-sex marriage.

GIGOT: They didn't accuse those people of discrimination, but they accused Phillips of discrimination?

(CROSSTALK)

FINLEY: Right. They are trying to outlaw speech that they disagree with or dislikes.

GIGOT: One of the most fundamental notions in American law is, if you're applying a law, it needs to be applied neutrally. That is to everybody.

HENNINGER: Well, that's right. And one of those fundamental ideas is that there are certain basic protections inside the Constitution, regarding freedom of exercise of religion and of speech.

There's an interesting thing going on here. For instance, on campuses, they are talking about -- they're saying, on one hand, we believe in free speech, but we think there are certain forms of hateful speech that ought to be outlawed. If they go down on that road, you are on kind of a slippery slope, as I think you are here, saying that, well, no matter what this baker may believe, we can compel him to believe in a certain forms of ideas. The idea behind the First Amendment was that's what they did in 18th-century England. They compelled people to behave in certain kind of set ways in terms of religious practice. That's why we have a First Amendment.

MCGURN: Yes, I believe that the debate over what's an artistic expression on a cupcake is sort of like the debate over angels over pinheads. And Kennedy did bring it back to the fundamental question, does forcing someone to participate in a ceremony that goes against his conscience, does that violate the free exercise clause of the First Amendment? I think that's the fundamental question. I do believe that if people are allowed to have their conscientious objections, we can live somewhat peacefully with same- sex marriage, plus people that oppose it.

GIGOT: Could this opinion be drawn in the end narrowly, Allysia, where you say if you have sincere religious beliefs, then you cannot be compelled to take part in a ceremony that you don't agree with?

FINELY: I think so. I think that would be the broader ruling, rather than the narrow ruling that just exempts the baker on free speech grounds. I think you want a broader ruling that will cover the florist, photographers and others.

GIGOT: Thank you all. Fascinating.

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

(COMMERCIAL BREAK)

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

Kim, start us off.

STRASSEL: Paul, Americans have been watching in horror this week at the wildfires that are raging across southern California, infernos on the sides of highways and fears for old neighborhoods in Los Angeles. So this is a very broad but deeply-felt hit for the 5700 men and women firefighters that are there trying to stop this. It's bad enough when fires rage uncontrolled across empty land, it's a lot more chaotic and more dangerous when it's in people's backyards.

GIGOT: All right.

Allysia?

FINLEY: This is a hit to President Trump's appointment of Mick Mulvaney as acting director of the Consumer Financial Protection Bureau, which this week has issued or initiated review all of the CFPB's ongoing investigations and suspended a fine against a small mortgage servicer that had driven it out of business under Richard Cordray, his predecessor.

GIGOT: So things getting done.

Kate?

ODELL: This is a bit of a hit and a miss for Patagonia, the outdoor retailer, who this week used its Web site to broadcast the message the president stole your land. They were basically referring to a Trump decision to scale back a huge national monument out west that had been taken in an Obama land grab last year. But I would say it's nice to hear that corporations have speech rights. From the left, we've been told for years that corporations don't have those.

GIGOT: All right.

Bill?

MCGURN: Paul, a hit to the NFL players who have been taking a knee during the national anthem. For years, reformers in Washington have been arguing against federal subsidies for stadiums, usually done through tax-exempt municipal bonds. Now a prohibition is in the tax bill. And the Republican and Democratic congressmen who put it there say it's partly because of the attention that the kneelers brought to the issue. So, thank you, Colin Kaepernick. Nix special tax breaks for the wealthy.

GIGOT: OK. All right, Bill.

That's it for this week's show. 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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