Transcript: 'The Journal Editorial Report,' January 5, 2008

This is a rush transcript from "The Journal Editorial Report," January 5, 2008.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the 2008 campaign is in full swing and we have it covered. With Iowa behind them, the candidates look ahead. Can Barack Obama and Mike Huckabee maintain their momentum in New Hampshire? We'll have a report from the ground.

Plus, Hillary's third place finish in Iowa sends her scrambling. Can she regroup before Tuesday?

And Romney's loss may be McCain's gain. Can he repeat his victory of 2000? Our panel weighs in after these headlines.

(NEWSBREAK)

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

With the Iowa caucuses behind them, the presidential candidates headed to New Hampshire late this week where they are facing a vastly different electorate and set of issues.

Here with a look at what is at stake in the first-in-the-nation primary is Senator John Sununu.

Senator Sununu, welcome, great to have you here.

SEN. JOHN SUNUNU, R-N.H.: It is great to be here, Paul.

GIGOT: I know you haven't endorsed any candidate but you know your state. In Iowa, the Republican voters in their caucuses said immigration was the number one issue for them. Is immigration as big an issue in New Hampshire?

SUNUNU: It is a big issue. The economy is clearly pressing on people's mind. And given the recent events overseas in Pakistan and elsewhere, foreign policy and foreign policy experience matters. And I think you put all these things together, they are different issues, people are looking for leadership qualities, leadership characteristics clarity and focus that they want in a president.

GIGOT: Experience didn't seem to matter too much in Iowa. It is interesting. John McCain is stressing that in New Hampshire and this summer, earlier, when the war in Iraq seemed to be going badly, Senator McCain suffered in New Hampshire. I know the war is not terribly popular. Has the success of the surge in Baghdad and the decline in violence helped him make a come back?

SUNUNU: There is no question about it. The quality of the work being done on the ground in Iraq, the success General Petraeus has had. For John McCain, more importantly, the fact he has been consistent on that issue outspoken, honest, direct, criticizing the administration and policy when he thought it was off base, and being instead fast even at a time when people didn't think the outcome would be as positive by the end of 2007.

GIGOT: In a state like New Hampshire, without an income tax, taxes have always been a big issue among Republicans. Is it still an issue this year?

SUNUNU: Taxes are always an issue, especially in a year like 2007 when we have seen so many attempts to increase taxes, at least at the federal level. A farm legislation introduced, health care legislation, energy legislation, all of these bills had tax increases in them. So the idea that you might have a president or leadership willing to raise taxes and the importance of keeping taxes low to keep the economy strong is, I think, in people's mind.

GIGOT: A lot of Republicans have said we will preserve the Bush tax rates. But with the economy slowing there is beginning to be a debate that maybe we need economic fiscal stimulus. Is there an opening for a Republican, at this stage, who wanted to come out and say let's not just keep the Bush rate, let's propose another tax cut to make sure we don't go into recession?

SUNUNU: I think there is an opportunity there, but it has to be uniform. I think you have to focus on tax simplification. The idea should be to have a tax code that promotes investment and job creation, wage growth. Not to try to find a gimmicky package that panders to one group or segment of the economy. Too often the word stimulus package turns into a grab bag, sometimes a grab bag for special interests.

We have a tax code that's too complicated. A regulatory structure that's too complicated. If a candidate wants to seize on this, they have to be willing to do real reform and change of our tax code.

GIGOT: Your state is changing demographically. I remember in the '80s, it was solidly Republican. It has been trending, of late, Democratic. You have a Democratic governor and what explains what is happening in that statement. It gets bluer all the time.

SUNUNU: It is not entirely true. 2006 was a very difficult election for Republicans in New Hampshire as it was nationally. But way back in 2003, which wasn't that long ago, we had a Republican governor, Republican U.S. Senators, Republican members of Congress.

The problems with the Republican Party in 2006, things weren't going well in Iraq, General Petraeus and the commanders on the ground have done a much better job there. There is no question that people felt Republicans let spending grow too much. We have done a much better job controlling the growth of spending this year. And I hope that continues being a real fiscal conservative.

So there is always opportunity in New Hampshire and elsewhere in the country for strong policies that support economic growth and job creation, strong foreign policy. Those are ideas that will succeed this year, and then succeed in the future.

GIGOT: On that point, Ed Rollins, a well-known Republican consultant and is now advising Mike Huckabee, he said recently the Reagan coalition, the sort of three-legged stool of foreign policy hawks, free market conservatives and social conservatives, that's dead, that a new Republican coalition has to be put together. Do you agree with that?

SUNUNU: Well, I think to a certain extent there is a mythology about the structure, the precise structure and organization of that coalition. Those were all important contributors to Ronald Reagan's success, but that was also a different time and different place. I think economic growth, certainly free markets, which have succeeded all around the world. It's not unique in the United States. You have countries in the world adopting a flat tax and real social security reform. Those are the Reagan, free market ideals and principles. I think a strong committed foreign policy is always going to be important to people in the United States, protecting our national security interests. And social conservatives and family values will be more important in some parts of the country than others. But I think it is something that resonates with core voters across the country.

I don't know if the precise coalition Ed Rowlands is talking about still exists or not, but those three groups issues of issues and policies still resonate with voters. We saw it in 2000, 2004. And it will happen again in 2008.

GIGOT: Among the Republican candidates — I know you haven't endorsed anybody — but is there anyone you think really isn't prepared to be president?

SUNUNU: I wouldn't — no, I wouldn't step up here and criticize someone's credentials and say they shouldn't be considered or they shouldn't have the right to run for president. I don't think that would be fair.

There are clearly big differences in qualifications and experience and background and a big difference on issues, even among Republican candidates.

But, look, this is America. This is New Hampshire. We cherish the idea of all candidates being able to come to the table, campaign town to town, person to person and get a fair shake, where money doesn't dominate, where name recognition doesn't necessarily dominate. You have to work hard at every town, at every town hall meeting.

GIGOT: Senator Sununu, thank you so much for being here. We will be watching your state on Tuesday.

SUNUNU: My pleasure. Thank you, Paul.

GIGOT: Still ahead, Barack Obama's Iowa victory leaves the Clinton campaign scrambling. Can she regroup before Tuesday? And can John Edwards fight on? Our panel takes a look at the changing democratic landscape after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, D-ILL., PRESIDENTIAL CANDIDATE: Hope is what led me here today. With a father from Kenya, a mother from Kansas and a story that could only happen in the United States of America.

(END VIDEO CLIP)

GIGOT: That was Democrat Barack Obama after his victory over Hillary Clinton in Iowa Thursday night. Clinton's loss sent her campaign scrambling to regain momentum ahead of Tuesday's New Hampshire vote.

Here with a look her prospects in the Granite State and beyond, "Wall Street Journal" columnist and deputy editor Dan Henninger, opinionjournal.com columnist, John Fund, and on the ground in Manchester, New Hampshire, chilly Manchester, columnist, Kim Strassel.

Dan, Thomas Jefferson said every country needs a little revolution every generation or so. The votes in Iowa seem to be in the mood for a revolution. What are the tricks of Obama and puck beetle us about the public mood.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yeah, Paul, revolutions are about throwing things over. On the Democrat side, what we may well see here is Barack Obama overthrowing the kingdom of Clinton.

Barack Obama in Iowa didn't defeat Hillary Clinton. He defeated Hillary and Bill Clinton. Bill Clinton was up there running hard for Hillary and he defeated them will both. This may be the beginning of the end for the Clinton machine.

On the Republican side, I am not sure we saw a revolution. We saw was evidence there is something wrong with the Romney candidacy. He should have done better than he did with all the money he spent. I think part of it may be the Mormonism, quite frankly. There was a big evangelical vote there. I always felt this would be a big hurdle for him to get over.

GIGOT: John Fund, this is supposed to be a foreign policy election. We are still in the post 9/11 world, the threat is out there, but Iowa voters didn't seem to care much about experience. They went with two people who did not run on experience, who ran on change. What does this say? Is the electorate just so fed up with Washington and with both parties frankly that they are looking for just somebody fresh? A real outsider this time?

JOHN FUND, OPINIONJOURNAL.COM COLUMNIST: Well, remember, Paul, in Iowa the Democratic activists — and that's who voted here — lean left. They have never quite forgiven Hillary Clinton for a vote in favor of the Iraq war and have never believed her when she said she wanted to bring troops home. And she back tracked back and forth on that. So her foreign policy experience ended up being a credibility problem for her.

GIGOT: So, Kim, what is the come back strategy for the Clinton campaign? I say Clintons because Bill has already been dispatched to New Hampshire to campaign there for five days. Do they have a strategy to get back at Obama?

KIM STRASSEL, COLUMNIST: Well they do. The question is, if it will have any traction at all. This was really bad for Hillary Clinton. It wasn't just that she got beat by Barack Obama, she got beat in just about every category — young voters, old voters, minorities, Independents, women. This was not something they expected. It showings she is not as inevitable as people thought and it exposed some of her weaknesses.

In Iowa, she made a big point of saying Barack Obama lacked experience. As you said, that didn't seem to resonate with voters. She has already pivoted. Here in New Hampshire, she is talking about how he is not electable in the long term. He is not able to run the long race, that she is prepared to do that.

But Barack Obama's response to that is, hey, look at the independents that voted for me. Those people will be decisive in a general election. Who says I am not electable.

GIGOT: John Fund, are there issues where Hillary Clinton can go after Obama where there really are sharp differences, or are there just not sharp enough differences other than how they voted on the Iraq war early on, that would make a difference? Where can she go at Obama?

FUND: She is going to spend the next four days pounding Obama on health care. She will say that Obama's health care plan leaves 15 million people without coverage. That it really isn't comprehensive. That her plan, which gives all of her health care advice in one package, is the answer.

The problem is I think the voters are not going to see dramatic differences and, secondly, what Hillary Clinton is best known for in domestic policy is her failed health care plan. She had her changes. She didn't make it. Now she has come back with plan B but I don't thing the Democrats have rallied to it. I think they are looking at Hillary Clinton as a potential liability in the November election.

Now, don't ever count the Clintons out. They will come punching back in a variety of ways. But on these issue differences, I think the issue is Hillary Clinton, not the issues.

GIGOT: So the Democrats are saying they don't believe Hillary Clinton — they believe she is less electable than somebody fresh and new and, even if he is a rookie, even if he doesn't have a lot of foreign policy experience, even if he wasn't at Bill Clinton's side for eight years, he is more electable candidate than Hillary Clinton?

FUND: Paul, the Iowa results were dramatic in one respect. Hillary Clinton has the union backers behind her. She had the union leaders behind her. But she only tied Obama with union voters. That's astonishing. It shows the troops aren't following the Democratic leadership.

GIGOT: Kim, what about the role of John Edwards? He is determined to stay in. There is a feeling out there that if he stays in, he may help Hillary Clinton because he splits the anti-Hillary vote, which as we saw in Iowa was as big as 70 percent of the Democratic electorate. Is his staying in something that Hillary wants?

STRASSEL: Well, she may well — the problem for John Edwards, he really needed a first-place win in Iowa. He doesn't have the money or infrastructure that either Obama or Hillary Clinton have. And so, you know, he was on the ground first thing in New Hampshire before anyone out rallying troops. And if energy can win an election, John Edwards has a shot, but the issue here for him is, is his message of populism going to carry as well in a place like New Hampshire. It found a receptive home in Iowa. And if it doesn't, is he really going to make much of a splash here and siphon votes from Obama. Hillary is hoping he will. It may make a difference if the race is tight.

GIGOT: Dan, a fascinating contrast in populism between Edwards and Obama. When you saw the speeches on Thursday night, John Edwards, it was resentful. It was angry. It was aimed at blaming capitalist and big business and corporations. Obama's change message, much more optimistic, much more aspirational, saying we can do better.

HENNINGER: Exactly. I think something special is going on with Obama and it relates to some other presidencies. He is an African-American. And I think there is still that sense among the American people of idealism and exceptionalism. And that's what Ronald Reagan ran on. An idealistic view of America. Even JFK ran on a certain kind of idealism.

I think Obama is tapping into that same impulse in the American people. This is going to be a very potent force going into New Hampshire and beyond.

GIGOT: It is fascinating, 93 percent of the Democratic caucus was white and gave their votes to an African-American. I think we can safely say white America will vote for an African-American candidate.

All right. Still ahead, it is game on in New Hampshire for Mitt Romney and John McCain. Can Romney recover from his Iowa loss or is the McCain's momentum too strong? Our panel weighs in after the break.

(COMMERCIAL BREAK)

GIGOT: Even before the Iowa caucuses got underway Thursday, Senator John McCain returned to New Hampshire to kick off a straight talk express bus tour during which he's stressing his foreign policy and military credentials. Is New Hampshire a must-win for McCain? And can Romney survive another loss?

Kim, the Republican electorate in Iowa was 60 percent self-identified evangelicals. That won't be the shape of the electorate in New Hampshire. How well will the Huckabee message travel in that New England state?

STRASSEL: Mike Huckabee will have a lot harder — trouble here. If you look at the polls, he actually has some of the highest unfavorability ratings among any candidate in New Hampshire, either on the Democratic or Republican side.

Now, he is already pivoting his message. He will try to appeal to the economic conservatives. He is flogging his fair tax. He is also talking a lot about energy independence, which goes well with green Republicans in the state. But he is going to have a much harder run. The real focus here will be on McCain and Romney.

GIGOT: Kim, why don't you handicap that race for us? Can Mitt Romney regain his momentum or will he be caught between McCain, who already won there in 2000, and Huckabee, who might get a bump out of Iowa and surge. Could he be caught in between and end up finishing third?

STRASSEL: Romney was wounded in Iowa. What Iowa showed is that this whole rationale for Mitt Romney, his argument that he was the ultimate Republican candidate, that he united all these wings we have talked about. It fell flat. Voters didn't buy it. They look at him and they see a manufactured guy.

He has been hurt hard and, at the same time, McCain has been doing well in New Hampshire. This gives him a great big opening. Mitt Romney isn't going to go away probably, even if he loses in New Hampshire. He will probably make a last stand in Michigan where his father was once governor, but he will have to do well here or hope to do well here or hope to do well if he wants to continue this race beyond Michigan.

GIGOT: Dan, I think I disagree with you about the Mormonism be his biggest liability. I think it was authenticity. If you've seen the exit polls, the entrance polls, the Republicans who went in said, I cared about the candidate who believed what he said. That authenticity issue you hear everywhere about Romney, that he's a kind of shape shifter. He is whatever you want him to be.

HENNINGER: I agree with you on that, Paul. Mike Huckabee was an authenticity candidate. I don't think it's real, but let's set that aside. It worked in Iowa.

In New Hampshire, it is a little different. Mitt Romney was governor of Massachusetts. He was a moderate as governor of Massachusetts. New Hampshire is a moderate state. However, to run for the presidency, Romney has been running as a died-in-the-wool conservative. So it doesn't quite track. And I think he will run into the same problem in New Hampshire that he had in Iowa. It is tough on Mitt Romney but it is something he is having a difficult time overcoming.

GIGOT: John Fund, does foreign policy experience make a comeback here in this election in New Hampshire and help John McCain, particularly against Mike Huckabee?

FUND: Look, the biggest change on the ground in New Hampshire is the war, a few months ago, when McCain's campaign fell apart, was going badly. The surge is working. McCain was the one candidate who said we should stick with the surge. I think he has new credibility here. He is getting newspaper strength with voters as people are disenchanted with other candidates.

I think John McCain will get a bump out of Iowa because of Mitt Romney's invincibility, long presumed since New Hampshire is next to Massachusetts, has now exploded.

GIGOT: John, do you disagree with those who say John McCain just has to win in New Hampshire. He won in 2000. He has to have momentum to pivot off of this and then move into South Carolina and elsewhere if he wants to raise money to keep fighting?

FUND: If Romney makes has come back and wins New Hampshire, we have a complete muddle. It is not clear who will carry on in Michigan and South Carolina. If McCain wins in New Hampshire, it gives him momentum in Michigan. Remember he won the Michigan primary with Independents. And then he can go on to South Carolina.

The problem McCain has in New Hampshire is a simple one. Obama may get the lion's share of the Independent vote in New Hampshire because he is the candidate on the move in the Democratic race. If he takes too many Independents from McCain — remember McCain lost the Republican vote in New Hampshire in 2000.

GIGOT: I don't know. Kim, I think I see this race, in part, as John McCain stressing his foreign policy and experience and his credentials vs. the attacks you will see on his tax record, particularly his opposition to the Bush tax cuts of 2001 and 2003.

STRASSEL: That is right. The question — and it goes back to Iowa again — is how much are voters — how much emphasis are voters putting this race on the experience question. Iowa, if we go by Iowa, it doesn't look good for McCain because they seem more interested in change. He is not what you would consider a change candidate. He has been around a long time.

GIGOT: Dan, Rudy Giuliani...

HENNINGER: I was just going to say...

GIGOT: Parking in Florida between now and January 29th. He is — he's the forgotten man? Is he still in the race?

HENNINGER: That just shows how strange this campaign has been. We got to this point in the conversation without mentioning Giuliani's name. He is down there in Florida. He is skipping New Hampshire. He thinks — and I think he's got a point.

GIGOT: He will make a foray up here.

HENNINGER: He'll make a foray there and then he's going to run on Super Tuesday across the South and remain the national candidate. It is bizarre.

GIGOT: We still have a Republican primary campaign here which is wide open. Nobody knows what will happen. It will be fun to watch.

All right, thanks.

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

(COMMERCIAL BREAK)

GIGOT: Winners and losers, picks and pans, "Hits and Misses," it's our way of calling attention to the best and the worse of the week.

Item one, a hit to Democratic candidates. Well, their spouses anyway — Dan?

HENNINGER: Paul, if we are going to run a campaign for two years, it helps if spouses can bring something to the game. On the Democratic side, have they ever. Michele Obama is as smart, but feistier than her husband. Elizabeth Edwards, irrepressible. I think she's the most likable political attacker I have ever seen. We have the amazing Elizabeth Kucinich, who married Dennis a couple of years ago and, as far as I'm concerned, as good reason as any for him to stay in the game.

And finally, the number one Democratic spouse of all time, Bill Clinton. Hillary saved his presidency. We are now going to find out whether he can save hers.

GIGOT: All right, Dan.

Next, a hit to retiring Democratic Congressman Tom Lantos — John?

FUND: Tom Lantos, Paul, is chairman of the House Foreign Affairs Committee, but he is a different kind of Democrat. Even though he hails from San Francisco, he has often been a supporter of bipartisan foreign policy. He was strongly anti-communist in the '80s. He supported the war in Iraq, was one of the lead sponsor for that.

It is true, since his friend, Nancy Pelosi, became House speaker, he moved left. He argued against the surge in Iraq and made a foolish statement reversing course on this Armenian resolution, which cost the U.S. foreign policy so much in Turkey.

But, Tom Lantos leaves Congress next year with his head held high. Let's hope some other Democrats will follow his example.

GIGOT: It is a shame because I think he would have been a real hawk on Iran and very helpful on Iran, even in a Democratic administration.

Finally, criminalizing the CIA — Kim?

STRASSEL: Yes. You know, if you want to know why fewer and fewer Americans are going in public service, here is your answer. We now have a miss to Democrats, who have pushed so hard on this question of the CIA destroying interrogation tapes that they've bludgeoned Attorney General Michael Mukasey into appointing a prosecutor to conduct a criminal investigation.

The problem is this is not about criminality. This is about politics. We know all from the evidence, the CIA agents were doing their job. And as way back as 2002, Congress was being fully briefed on what they were doing.

Instead, what we have is a Democratic Congress that wants to get President Bush, an election year. So we are now risking making this agency that we told to be more aggressive, actually step back and not do as good a job protecting the United States.

GIGOT: OK, Kim, thank you.

Dan, quickly, you are going to miss Bill Clinton if the Clintons are bumped out of this, aren't you? Just admit it, aren't you?

HENNINGER: For about a day.

GIGOT: That's it for this week's edition of the "Journal Editorial Report." Send your e-mails to jer@foxnews.com and visit us on the web at www.foxnews.com/journal .

Thanks to my panel and to all of you for watching.

I'm Paul Gigot. We hope to see you right here next week.

Content and Programming Copyright 2008 FOX News Network, Inc. ALL RIGHTS RESERVED. Transcription Copyright 2008 Voxant, Inc. (www.voxant.com), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, Inc.'s and Voxant Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.