Transcript: 'The Journal Editorial Report,' November 17, 2007

This is a rush transcript from "The Journal Editorial Report," November 10, 2007.

PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," billionaire Warren Buffett said Congress should raise his taxes. But are there costs to soaking the rich? We ask one of Silicon Valley's top CEOs.

Al Gore's new gig, is he a venture capitalist or Washington lobbyist? We'll take a closer look.

New York's governor abandons his plan to give driver licenses to illegal immigrants. Was it the right move?

Those topics, plus the Barry Bonds indictment, but first the headlines.


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

Warren Buffett went to Washington this week to ask Congress to raise his taxes. The billionaire businessman told the Senate Finance Committee, quote, "I think we need to take a little more out of the hide of guys like me."

Here with a look at taxes and their consequences is entrepreneur T.J. Rogers, founder and CEO of Cypress Semiconductor, a Silicon Valley computer chip maker.

Thank you for being here.


GIGOT: I think Warren Buffett was not just talking about himself, but also guys like you, saying raise their taxes. Do you agree with him?

ROGERS: I agree with that comment, but I'd have to modify it. Warren Buffett is not talking about himself. He is the master of hypocritical statements. He is talking about guys like me. Warren has billions, tens of billions of dollars beyond the tax stage. It is easy for him to say tax the other guys.

I am a micro millionaire. My money is invested in Silicon Valley companies. And if he starts taxing the wealth creators in the world, which are younger guys like me right now, we are simply going to move a bunch of money from productive investment to Washington. If anybody believes it will be more productively invested there, I need to talk to them.

GIGOT: OK. The capital gains tax, in particular now, the rate is 15 percent. There are a lot of people who say why should people pay 15 percent on capital gains when ordinary workers on a salary, earners are paying 28 percent, 31 percent, 35 percent. What is the argument for that differential rate?

ROGERS: Well, there has always been an argument for it to be different. For example, if I work in an investment company and earn salary and I earn income tax on that. I invest money and earn capital gain on that and that's, in effect, an added tax on top of the salaries that financial companies pay. If you raise that tax — let say it is 50 percent, let's say a parity between capital gains and income — if you raise that tax, what happens is people lock up their investments. Any rational human being will avoid being taxed, giving their money to the government.

That means instead of being able to move my money from one, today, energy investment, to a different energy investment, that means that I lock up my money and I'll avoid taxable events or put it in tax-free whatever. And the net result is that the tax structure will force people to change their behavior and it will harm investment and Silicon Valley in particular.

GIGOT: The corporate rate is about 35 percent in this country. It is either the first or second highest in the world after Japan, depending upon how you measure it, if you include estate taxes as well. Has that affected your behavior as a CEO and where you invest and how you invest? And would it make a difference if reduced.

ROGERS: Sure. You know, add on to the 35 percent California, which is one of the high tax areas, and can you look at — for example, Silicon Valley is no longer Silicon Valley. We talk about Silicon Valley as if it is a place you can go see. They make silicon there. We don't make silicon here anymore. I was one of the last hold outs in Silicon. I, meaning Cypress Semiconductor, one of the last hold outs in Silicon Valley to still keep the silicon fab here. I shut my fab down and sold it last year. So I make no silicon in Silicon Valley. I make it in Minnesota and Texas. And if they creating more punitive tax laws, I move it out of the country.

Right now, the center of silicon manufacturer is moving to Taiwan and to mainland China. So it is like anything. If the tax on cigarettes gets to be $100 a pack, then people will stop smoking or the mob will help us out by moving tax free goods.

And basically, what California has done, and what other states shouldn't replicate, is forcing and out. There is a big sign at the California border. It says, "Business not welcome." As a result, businesses in California, mine included, are putting our plants elsewhere.

GIGOT: It makes it sound as if Silicon Valley, the Silicon Valley that you started your company in 30 years ago, really has changed. And yet we do see that there are start ups that are still moving ahead. We have had the Google explosion and the Internet companies. We have had the biotechnology companies, which are still starting and growing. You are saying it is changed, though. That that doesn't happen. What about the companies that are, in fact, growing?

ROGERS: Well, what has happened is major investment by larger companies, — mine is now a couple billion dollar company — in California, become infeasible. So to create a factory, to create job, to give people jobs here in California, that has been pushed aside. Nobody in his right mind would invest a few billion dollars in California to create a plant to create jobs here because of the punitive tax structure.

Meanwhile, back in the venture capital industry, that's well and thriving. Think about how that works. Venture funds put money into a start up. Young managers, who want to make it, want to build a company, get — wait for years. Get stock in their company. If the company goes public they have a major liquidity event. And they sell their stock. They get capital gains tax, which is low. And they create a new and industry in California. That's the story with Google.

We were Silicon Valley. Then we were Server Valley, then we were Biotech Valley. Then we are Search Engine and Software Valley. Now we are becoming Energy Valley. As soon as you tax capital gains, as soon as you make the return on investment for venture capital worse, then all of a sudden money stops flowing to venture capital. Venture capital stops going to young entrepreneurs. And Silicon Valley stops being Silicon Valley. These guys are not the rich guys Buffett is talking about.

GIGOT: So an increase of the current capital gains rate, which is 15 percent to, say, 15 percent, as Barack Obama and John Edwards want to do, or 20 percent that Senator Clinton wants to do, that would make, in your view, a tangible negative impact on entrepreneurship in the valley?

ROGERS: Of course. Think about your bank account. You go to one bank they say I will give you 8 percent interest. You say great, I will put my money in. Then they call you up and say we have decided to change it by 5 percentage points. It is 3 percent interest. If you change 5 percentage points the return on investment in any channel of capital, then the capital is in there, and it is invested to make money. It is not in there to do good for the world. It is a venture capital to make money. And, by the way, venture capital does good for the world in making a profit. Then that money will move to another channel where profit can be made.

GIGOT: All right. T.J. Rogers, thanks for being here.

Next, Al Gore is headed to Silicon Valley, but as venture capitalist or lobbyist?


GIGOT: Al Gore is taking his global warming crusade to Silicon Valley. The former vice president and recent Peace Prize winner announced he will join a powerhouse venture capital firm, Kleiner Perkins, in an effort to finance so-called green technologies.

Here with a closer look at Gore's new gig, "Wall Street Journal" columnist and deputy editorial page editor Dan Henninger, assistant editorial page editor, James Freeman, and Washington columnist Kim Strassel.

James, you have been following this. Kleiner Perkins is one of the most famously successful venture firms in America, financed some of the great companies, high-tech companies. What is Al Gore up to?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: His timing could be perfect for Kleiner because the firm has back more than a dozen of these clean technologies. They haven't been able to exit any yet. As they look to cash out, a big, big issue for them is the energy bill stalled in Congress with lots of subsidies and favorable regulations for these companies and their portfolios. So Al Gore — Mr. Gore is showing up at a critical time here for the company.

GIGOT: Wait a minute. You are saying this is not necessarily all about venture capitalism, but it may be about venture politics in Washington?

FREEMAN: Well, as far as why they make certain investments and how, I will leave that to experts, but what is absolutely clear is that the stakes are huge for the companies they have invested in this the green tech space in the Washington energy bill, if it ever happens.

GIGOT: What companies are those? Are they ethanol, solar?

FREEMAN: Two companies in ethanol. Another company that is biofuels, claiming to be creating something better than ethanol, which probably won't and hard. Where it can be better than gasoline is the tough challenge. Then two companies in solar. Another one in geothermal.

GIGOT: Wow. So 60 votes in the Senate may be Al Gore's real game here if can he do something in Washington to get that energy bill through the Senate.

DAN HENNINGER, COLUMNIST AND DEPUTY EDITORIAL PAGE EDITOR: That's right, Paul. You know, at some level, it is quite preposterous and even dangerous. If you want to put a solar panel on the roof of your house, feel free. But we are talking about the energy sources for the entire company. Things like biomass, solar, geothermal this all requires — this is immensely complex issues. The only way to sort through which one works is with the price mechanism.

It seems to me, if you fool with the price mechanisms with subsidies, as we are learning with ethanol, you will put the economy at risk if you try to go down the road and purport to be able to subsidize fuel for the entire American economy.

GIGOT: Kim Strassel, you are our Washington expert here, following the maneuverings in the beltway on energy. Where does this energy bill stand and is it as crucial to these alternative fuels as we've been discussing?

KIM STRASSEL, WASHINGTON COLUMNIST: The energy bill is stuck at the moment, which is actually a good thing, because it is a horrible bill. It gets exactly to what James and Dan have been saying.

These days if you are an energy company it is not about building a product and getting Americans to buy. It is about getting Congress to mandate its use. This is what the bills that are in the House and the Senate are about right now.

In the Senate version, you have a cafe version to raise fuel efficiency on cars. This is a boon to people making clean car technology and all of the people that go along with that.

And then in the House you have something called the Renewable Portfolio Standard, which requires utilities to produce at least 5 percent of electricity from renewable sources — wind, solar, geothermal — by 2020.

This is again a huge sort of hand out requiring people to use wind power, solar power, geothermal power. These companies probably won't compete on the market otherwise.

GIGOT: Kim, I think if you are Al Gore, you'd you say global warming is such an overwhelming problem, it threatens our existence and therefore, you know, these taxpayer subsidies, or something like this, they really should go to develop these alternative energies because that's the only — if that's the only way they will be competitive, so be it. But this is something we, as a culture, society, country, ought to invest in. What's your response to that?

STRASSEL: I think there are two. One, if you really believe in that, OK. Exempt at least put your money something that works. Right now renewables are about 3 percent of our electricity energy needs at the moment. It is going to take a phenomenal amount of money to even double that number. So it is not going to make much of a dent in what we emit.

The other thing is there is a great argument out there that by instituting these things, who will pay for all this? Fundamentally, American consumers. Any time energy costs go up, it is bad for the economy. Wouldn't the economy, wouldn't the country be better off if you had a booming economy, if energy prices were low and you could then use the fruits of all of that to come up with sort of smarter tech investments. That's how the markets work. And in the past, it has been how we get some of our best innovations to fix some of these environmental problems.

GIGOT: James, there has also been something of a political backlash, interestingly enough, against corn ethanol. As it's boomed in the Midwest, some parts of the country where these plants are going up don't like them.

FREEMAN: You have competition for water. As ethanol sucks more of the water from other uses, you will have more controversy out there.

Right now, to create a gallon of ethanol you need 1,700 gallons of water and about a gallon of oil. So it is obviously not economical. I think people are realizing that.

Even on the environmental side, Greens are starting to say wait a minute. This has a huge water appetite. Let's cut back.

GIGOT: All right.

STRASSEL: Paul, ethanol is a great example of how, when you centrally direct markets, it has a knock on effect across everything else.

GIGOT: All right, Kim, thank you very much.

When we come back, New York Governor Eliot Spitzer pulls the plug on his licenses for illegals plan. Was it the right move? There is a debate ahead.


GIGOT: New York Governor Eliot Spitzer pulled the plug on his controversial plan to issue driver's licenses to illegal immigrants citing fierce public opposition. Spitzer proposed the initiative in September in an effort, he said, to improve safety in New York, home to more than one million undocumented immigrants, many of whom are driving without licenses.

We are back with Dan Henninger. Also joining the panel, editorial board members Dorothy Rabinowitz and Jason Riley.

Dorothy? What's wrong with giving a driver's license to an undocumented alien?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: Everything. But before we say that we have to say that there is something very right about one thing, and that's Governor Spitzer brought to the proper level of lunacy and absurdity the entire question of this opening up the world to illegal immigrants.

And that's really the...

GIGOT: Well, you don't think they're not going to drive, do you? Even if they don't get a license, they are here. They will presumably drive anyway because they are working. They need to get to work, so they will be driving any way. Isn't the question whether they will have a license and maybe insurance? Or not a license?

RABINOWITZ: There are some issues in the world that just don't make room for this kind of practicality. The outrage of giving this concession to people who are here illegally and saying, OK, we are going to make our society safer and the roads safer. It reeks of the kind of phoniness that the entire discussion of giving concessions to illegal immigrants do. And that is why the public so revolted at this.

GIGOT: But is it a question of symbolism then?


GIGOT: Is it a question of what a society is — is it, do you think condoning, sending a signal of condoning illegals if it gives them licenses (ph), is that it?

RABINOWITZ: Yes. Of course it is.

GIGOT: It is not objection.

RABINOWITZ: It is not practical — well, it is practical. The wrong kind of idealistic surge is invariably a practical matter. The people, who are arranging or embracing illegal immigrants, marinated in self- righteousness, along with all their supporters everywhere in the press, have to say...

GIGOT: I guess we are marinated over here.

RABINOWITZ: They finally have come up with a wall. A wall of genuine public logical resistance. Governor Spitzer, I have to say, set himself up there and apologized.

RILEY: Well, Dorothy, Spitzer changed course for political expediency.

RABINOWITZ: How cynical, Jason.

RILEY: His poll numbers were taking a hard hit. Even the National Democratic Party was getting on his case. I mean this issue dominated the first part of the Democratic debate this week.

But once you've decided you won't deport the 12 million illegal aliens in the country — and we are not — what public policy purpose is served by allowing them to live here, but not drive legally?

I mean, as Paul said, some will do it anyway. And so there of that will only leave you with more uninsured and unlicensed drivers on the road.

Also, from a national security standpoint, from a homeland security stand point, a post 9/11 environment, knowing who is in the country is more important than ever. The Department of Motor Vehicle database is the largest security database in the country. Why would you want to purposely exclude millions of residents from being in that database?

RABINOWITZ: Let me tell you, Jason. All of these things that you see as so logical have the kind of speciousness that attaches to the entire embrace of immigrants. There is something about this central principle, which is that Americans are rightly enraged at allowing people, who should not be here, who have jumped the line, at getting any kind of advantage. And embracing it in legal form, such as, yes, you can have a driver's license, everything else is secondary to that, including the logical points you just made.

RILEY: Homeland Security? I'll give you an example. William Bratton, police chief in New York and current police chief in Los Angeles, and someone I don't think anyone would describe as soft on crime or soft on Homeland Security, was in favor of Spitzer's plan. Because he said it would result in fewer hit-and-runs and also we would have names and photographs of people in the country. And that would help us solve crimes and make us safer from terrorism. Is he being specious and impractical (ph)?

RABINOWITZ: Yes, the larger issue here. I am sorry, Dan. I'm sure you want to say something.

HENNINGER: Oh, no. I don't want to get in the middle of this.

RABINOWITZ: The larger issue is the smoldering anger Americans feel. And it is a trustworthy feeling. This is no lynch mob despite the efforts to describe it. You realize that everybody who deviates from the idea of embracing illegal immigrants is treated and talked about as though they were some backwoods mentality.

GIGOT: We love you, Dorothy. We would never say that.

RABINOWITZ: This is how it is. It is like the tone taken by against the right.

GIGOT: Let me introduce one more point quickly, Dan, and that is there is an element here of voter fraud, is there not? A concern about that with illegals program that our...


HENNINGER: Yes, let's discuss this at the rawest level of politics. The Democrats aren't supporting these illegal immigrants out of the goodness of their heart. They see them as a potential voting block for them.

There is something called the Voter Registration Act of 1993, enacted by Bill Clinton, called Motor Voter, which means that when you get a driver's license, you get to register to vote. And it makes it difficult to control that at the voting booth. Voter fraud is a real possibility here.

GIGOT: Dorothy, we have to go. Thanks very much.

We have to take one more break. When we come back the Barry Bonds indictment and our "Hits and Misses" of the week.


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

Item one, the indictment of Barry Bonds — Dan?

HENNINGER: Paul, the Barry Bonds thing is not so much about him, I think, as about us. As this case goes to trial, as it may, we will hear a lot of reasons like — because what Barry did was no big deal. Hey, they are professional athletes and, hey, everybody in life now pushes the edge of envelope — sports, business, politics.

We are told as children, life isn't fair and there is a lot of sharp elbows out there in life. But it seems to me that if we buy into this as we go towards this trial, then what we are going to do is revert to essentially the law of the jungle. We have been there before and we didn't like it. And I think that if the idea comes forth that Barry was just pushing the edge of the envelope, I hope there's a lot of people are willing to push back.

GIGOT: Thanks, Dan.

Next, sorry sports fans. A miss to the National Football League — Jason?

RILEY: Yes. It is a miss to the NFL, which is, everyone knows, full of tough guys. But that doesn't extend to team owners, who think nothing of crying to federal regulators when they don't get their way. That's what they have done. The NFL owns the NFL network and they are upset that they are not getting wider distribution on cable television. The cable companies want to regulate the NFL network to their sports tier program, which is a little less popular.

This is not a federal issue. This is not an issue for the government. This is a private dispute that should be handled in the private sector. And if the NFL doesn't like the way they are treated by cable companies, they should make them a better offer.

GIGOT: OK, Jason, thanks.

Finally a hit to Attorney General Michael Mukasey and his first week on the job — Dorothy?

RABINOWITZ: He was everything I think we thought he would be. First of all, during his hearings, those tough hearings, he stood up and was without fault in resisting all the efforts to get him to condemn waterboarding and everything else.

But then he uttered one sentence in his post-swearing in speech in which he said, "It's good to be back. It's good to be back. Many things have changed. And one of the things that's changed is the confrontation with a threat that — from people who believe it is their religious duty to make war on us."

And I sat there listening to this and I thought, can you imagine Alberto Gonzales saying anything as specific as this about anything, but much less about the nature of the war. And in that one sentence, we suddenly have the surge of feeling that we are onto one really very good attorney general. And he should have been here a long time ago.

GIGOT: All right, thanks, Dorothy.

Dan, on the Barry Bonds business, it looks to me as if he actually just fessed up and said, look, I did use steroid, this indictment could have been avoided.

HENNINGER: yes. I think it would have put us back in the same position I describing earlier, which is does the word cheating have any meaning in our society anymore? If he doesn't and he had just fessed up and people would have slapped him on the wrist, then I think we really would have taken ourselves a few steps down a road we don't want to go.

GIGOT: All right, Dan, thank you.

That's it for this week's edition of the "Journal Editorial Report." Send your e-mails to and visit us on the web at

Thanks to my Dan Henninger, Kim Strassel, James Freeman, Jason Riley and Dorothy Rabinowitz.

I'm Paul Gigot. Thanks to all of you for watching. And we hope to see you right here next week.

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