This is a rush transcript from "Journal Editorial Report," January 5, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," Washington avoids the "fiscal cliff" with a tax-and-spend blowout. We'll tell you what it means for the U.S. economy and your wallet in 2013.

Plus, from Hollywood filmmakers to NASCAR track owners, a look at the real winners in this so-called tax cut for the middle class.

And with his second term as House speaker secured, does John Boehner have a strategy for dealing with President Obama, and can he survive the coming battle over the debt limit?

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

Well, with no time to spare, Congress passed and President Obama signed into law this week a bill to avoid the so-called "fiscal cliff." The New Year's Day deal represents the biggest tax increase the country has seen in 20 years, all in return for billions of dollars in new spending and spun, of course, as a tax cut for the middle class.

Here with a look at what it all means for your pocket book, and the U.S. economy in 2013, "Wall Street Journal" columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; and senior economics writer, Steve Moore.

Steve, let's go to you first.

I think based on our conversations this week, you like this deal a little more than I do. Why don't you make the best case for doing it -- for it, for the deal?

STEVE MOORE, SENIOR ECONOMICS WRITER: Well, Paul, this was, for Republicans, a kind of "eat your spinach" moment. I just don't see any other alternative to what happened.

And, look, I think this is a rancid deal for so many reasons, especially the fact that I think it's really harmful to the economy.

I guess my point, Paul, would be I don't see Republicans had much choice. I mean, you talk to John Boehner and you talk to Mitch McConnell, and what they say is, for six, seven weeks, the president would simply not budge one inch on cutting spending. He simply had no interest in doing that. The Republicans believed, and I think they were probably right, that if they'd gone into 2013 without this tax issue resolved --

GIGOT: Right.

MOORE: -- they'd be pummeled day after day by the president. So I hate the deal. I think it was the least rotten apple they could have gotten.

GIGOT: A rancid deal but had to take it.


I don't like the spinach metaphor here. That's good for you. It may not taste good but it's good for you.



GIGOT: How much damage is there to the economy from this bill, Mary?

MARY ANASTASIA O'GRADY, COLUMNIST: Well, I prefer the least rotten apple than spinach.


I mean, I think that the two big problems here is that people who believe that the rich should pay more do not understand the effects of marginal rates. When you raise marginal rates--


GIGOT: The next dollar of income that you earn.

O'GRADY: Right. So it lowers the incentive of the people that you want it take risks and to innovate and to create. That's one problem. So it will affect the growth of the economy.

The other problem is, it does affect tax revenues. The guys with the green eye shades say, well, if we raise the taxes this much, we'll get this much more revenue. If you lower the incentive of people to take risks, generally what happens is revenue does not come in.

GIGOT: So you don't get as much as you think you'll get?

MOORE: Exactly.

GIGOT: But here, Mary, look, the economy seems to be -- the stock market loved this, right? They just blew out the next day. It's been up for a while, based on the prospect that something would get done. Housing market is recovering. I mean, the economy, the job market, not great still, 155,000 new jobs, but the economy does seem to be doing OK.

O'GRADY: Well, I think that's probably right. The economy will do OK, but when you have unemployment at 7.8 percent, and it's really stubbornly not budging, you want to do something -- something more for the economy than just OK, than muddling through. I mean, if you're the president and you can fly back and forth to Hawaii, you're not feeling it, but there are lots of people who are feeling the malaise of the economy, the low, slow growth. So, I think it's disappointing that we weren't able to do something that was really more -- had more of a positive impact.


DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Well, there were a couple of big words attached to the "fiscal cliff." One was "uncertainty." The economy as and business needed certainty. And the other was the prospect of a recession. I think the deal probably undoubtedly does avoid a recession. We're not going to have negative growth, but we are probably going to have growth as we have had for about the last two years of two percent or less. So, we do have an economy, but we do have an economy that's bumping along the bottom.

In terms of the certainty of the tax deal, yes, we do have that, but on the other hand, the Obama health care law is going to be implemented all through 2013.

GIGOT: Right.

HENNINGER: The Wall Street Journal just reported that only 14 percent of small businesses actually understand the Obama health care law.


And so, there is a huge overhang of uncertainty.

And then plus, Dodd/Frank, which is going to be implemented through the financial industry. Why do we have two percent growth? I think those are the reasons. We have some positive signals for the economy, but not enough to pull it off.

GIGOT: Steve, let me -- is there a silver lining here at all that maybe the public will begin to understand that you can't reduce the deficit with a tax increase? You just can't do it. This represents what, $600 billion, they say, over 19 years. That's about six, seven percent max of what the deficit is?

MOORE: Great point, Paul. By the way, let me step back a minute and say that you and I and Dan and Mary, we have will lived through these budget deals for 25, 30 years. This is the first -- and almost none of them have really worked out very well. But this is the first budget deal that I can recall, dating back to the early Reagan years, where there wasn't a pretense of cutting spending. Usually, it would $3 of phony spending cuts --


MOORE: -- for $1 in taxes. There was -- in fact, we increase spending in this deal --

GIGOT: Right.

MOORE: -- with the extension of unemployment insurance. Now I think the Republicans are on a little bit higher ground as we go forward.

You saw President Obama in his little press conference after he signed the bill saying, this is only the first of many tax increases to come in 2013. I believe the Republicans are not going to budge an inch on that. I think they're going to basically say, Mr. Obama, you've got your tax increase on the rich. Now we have to turn to spending. And I think that's where the real fight is headed now.

GIGOT: Mary?

O'GRADY: Paul, I really think that anybody who thinks that this gives businesses certainty is crazy. As Steve just said, President Obama's already saying he wants more tax increases. He's not done with that at all.

And there is no solution in the spending side. So there's no certainty out there. People are still looking at a very expensive Obama- care, and no way to pay for it.

GIGOT: If we can afford it after paying your tax bill, you might want to hire a lobbyist. That's what Hollywood did, and it was rewarded with more than $400 million in tax breaks in this "fiscal cliff" deal. We'll tell you who the other big winners were when we come back.


GIGOT: President Obama, for his part, praised this week's huge new tax increase, saying that millionaires and billionaires will finally pay their fair share under the "fiscal cliff" compromise. That is, unless they were smart enough to hire a lobbyist. Those folks managed to get their taxes reduced in the deal, as Congress handed out $78 million in tax write- offs for NASCAR track owners, $222 million in tax rebates for rum distillers, and $430 million in tax credit for Hollywood producers, and billions more in green energy giveaways.

So, Mary, I thought this was about social justice --


-- the rich paying their fair share. What happened?

O'GRADY: Yes, the rich paying their fair share to other rich people.


It's redistribution.

GIGOT: From the rich to the rich.


O'GRADY: Well, we know this is basically how Washington works. You have lots of lobbyists working on Capitol Hill and their job is to get money out of the rest of us and give it to special interest. And that's basically what happened here.

I mean, you remember way back when, we when we started talking about this, we're always talking about "lower the rates and broaden the base." That's not, you know, even remotely what happened here. It was really just more of complicating the tax code in order to help people who had effective lobbyists.

GIGOT: Dan, if you had talked to the Hollywood producers who have their lobbyists, the Motion Picture Association, which got $430 million, they'd say, we need this because if you don't, they'll make films in New Zealand or Canada and we'll lose that business. Wouldn't that be true of any business, too?


You could say, yes, if you don't give them a special tax favor, they'll go elsewhere, too?

HENNINGER: Yes, well, I think, if you read through -- there was a summary of all the tax breaks. It was 19 single-spaced pages long. And I read through it New Year's Eve. And after a while, I felt like a sap. I said, why am I not getting a piece of this action --


-- maybe a tax credit for walking to work and saving energy?


But you know, everyone is in on it, Paul. There's a $355 billion child care credit. Conservatives like that credit because it helps families. But there are tuition tax credits. There are adoption credits. A lot of these are pushed by the left as well because a lot of these credits flow back to community action.

GIGOT: But at least -- that's true, Dan. But at least something like the child credit -- I don't support it -- but at least it's broadly spread out across the population. This stuff for Hollywood and NASCAR, this is the most egregious special interest legislation.

HENNINGER: I understand that. But the way the game is played is if you're going to do credits for pro social things, it's a little hard to fight the ones for the discrete corporate breaks as well, because everybody in Washington understands that they're all in the same kind of corrupt game to get these credits out of the taxes. And that's why tax reform is going to be so difficult.

GIGOT: Steve, one of the themes here in this bill is increase in taxes on small businesses who often pay at the individual rate in order to channel that money to big business through these tax favors. How do you see it?

MOORE: Yes, I completely agree with that.

By the way, you know, Dan, you should have invested in the algae industry --



MOORE: -- because that's another one that comes out ahead.

What infuriates me most about this, Paul, is the huge give away to the green energy industry. And you know, you're talking about subsidies to algae, biodiesel, and then the wind industry got a massive tax credit, a kind of tax subsidy. And there is a hypocrisy issue here, Paul, because the left keeps saying, oh, the taxes don't matter. Businesses don't make decisions based on taxes. That's why it's OK to raise taxes. And then, yet, they're saying, oh, but the wind industry and the algae industry can't possibly survive if we don't give them these tax benefits.


MOORE: So I think the Republicans should attack that hypocrisy.

GIGOT: Hold, hold. Steve, you said the left. Well, five, or, excuse me, six Republican Senators voted for this --

MOORE: Great point.

GIGOT: -- tax extenders bill in the Senate Finance Committee. I mean, this is both -- both parties have their fingerprints on this.

And the question I have is, why would Republican favor something like this?

MOORE: Well, you're exactly right. You know, the Iowa Senators were very much for this. Chuck Grassley. I don't know, Paul, when it was that Iowa became an energy state --


-- but they now thrive on wind subsidies and ethanol. And so, it's a big problem.

The one point I would make, I guess I disagree with Dan on one point. I think the tax code is so rotten right now. It's just so filled with special interests. You've got -- I think it makes the case for tax reform, Dan. I think it's just, people are going to say blow the whole thing up and start over again.


HENNINGER: But that's the reason they won't do it, Steve --


-- is because so many of them have gotten a piece of the action.


HENNINGER: That's what makes it so difficult.


GIGOT: Can you arbitrate this dispute, Mary?


Do you think this increases or decreases the likelihood of tax reform?

O'GRADY: Oh, it decreases it for sure, because once you get that special interest, I mean, we know this from public choice theory, that special interest becomes so much more powerful and will use, 24/7, its power to protect that -- that carve out.

GIGOT: But Steve's argument is, the worst, the better. Because it gets so bad that suddenly --


GIGOT: -- enough public anger, anger.

O'GRADY: My answer to that is Argentina.


It will get a lot worse --


GIGOT: This is always Mary's trump card. She always goes, it can get worse.


O'GRADY: But let me just add one thing that I think is -- what really scares me about the whole algae and sludge tax credit --


-- is that these politicians don't seem to understand that we're sitting on a gold mine of natural gas --

MOORE: I know.

O'GRADY: -- and fossil fuels. And that's what we need to exploit if we're going to get this economy moving.


Still ahead, John Boehner elected this week to a second term as House speaker. So, now what? Can he work with a president who hasn't been very much interested in compromise, and can he keep his own party behind him? A look ahead to the 113th Congress and the prospects for tax, immigration, and entitlement reform, when we come back.



REP. NANCY PELOSI, D-CALIF., HOUSE MINORITY LEADER: With respect to our constitution, with faith in the American people, with hope for the future of our country, I present the people's gavel to the speaker of the House, John Boehner.


PELOSI: May God bless you.


GIGOT: John Boehner was reelected to his post Thursday, capping off a tumultuous week. Not to mention a bruising first term as House speaker. But with another debt battle brewing as well as showdowns looming on tax and entitlement reform, can he take on an emboldened President Obama while keeping his own party in line?

So, Steve, very difficult week. Everybody's critical of John Boehner, but yet, reelected as speaker. Why is he reelected if everybody is so critical?

MOORE: Yes, boy, that must have been a tough speech for Nancy Pelosi to give, by the way.


Look, I have been a defender of John Boehner. I think he did an exceptional job when he was minority leader in 2009 and 2010, Paul. Really giving very strong principled opposition to the kind of policies that Barack Obama was promoting at that time, the stimulus bill, Obama-care, and so on, holding the Republican caucus in line on principled grounds. I think where Republicans need to go now is, look, we know Barack Obama is looking at governing from the left. We've seen that just the last few weeks. I think that Republicans have to be very principled in opposing those policies.

And Paul, one other thing. They have to get back to the growth message. Isn't it interesting that, in the last five weeks, nobody, neither party, has really been talking about what's good for the economy, how do we grow jobs, and make the private sector more prosperous?

GIGOT: Well, Steve goes back to 2009 and '10. But 2011 and '12 weren't very good --


-- for the Republican House in terms of actual tangible accomplishments. Yes, they were great on liberal governments, but that's all you could say for it. How does Boehner make the next two years better than the last two?

HENNINGER: Well, on the -- he has already said there will be no more secret negotiations with the president, no more grand bargains, that he intends to go through normal legislative order.

GIGOT: Do you agree with that?

HENNINGER: I completely agree with that.

GIGOT: Why do you agree?

HENNINGER: Because, for one thing, it distributes responsibility in public. People have to vote on things. They have to take a position. It can't just be negotiations no one can understand, the smoke and mirrors of Washington.

GIGOT: There's transparency there.

HENNINGER: There is a transparency there. And it also allows people to stand up and defend positions that they're taking, on either side of the aisle. And I think we need a lot more of that, Paul. I think we need something beyond John Boehner being the face of the Republican Party.

I like Mr. Boehner, too. But I don't think he can carry the ball for the entire party.

GIGOT: You're talking younger people, some of the others, Marco Rubio, Florida Senator, maybe let him take the lead on immigration --


GIGOT: -- others take it on tax policy.

Do you agree with that idea, get out of the smoke-filled room?

O'GRADY: Oh, absolutely. The president's shown he's not negotiating in good faith in those rooms. And what he's done is basically made deals and then, as the Republicans got closer and closer, he pulled the football away. And you know, they can't go on like this.

I think it's very important that they, going forward, don't let themselves be set up as nearly obstructionists. You know, he's going to try to say that they are going to damage the faith and credit of the U.S. government by threatening a default and that that's going to harm everybody. He's going to really try to make them to be the villains. And I think they have to turn this around and demonstrate to the American people that the spending is just not something that can go on.

I mean, you know, there's simple charts you can put up there that show what happened to the numbers. They let the debate in December be all about tax, taxing people who had a lot of money be the right way to solve all of our problems. They let it be about that. And it should have been about --


GIGOT: Hey, we just had a presidential election, Dan, where spending was on the agenda. And the public said, you know what, so what.

HENNINGER: I'm not sure they said that on spending. The only thing I thing he got was that he wanted to increase tax rates on the rich.

I'm going to take slight issue with Mary. I think there's something useful in obstruction over the next two years. The president has made it clear he does not intend to do business with this Congress. He intends to push his agenda by any means possible.

And I look back to the 1990's or even the Reagan years when George Mitchell was the Senate majority leader, and he used a lot of procedural techniques to oppose policies back then -- committee members using investigations to raise problems in the Reagan and Bush administration. I think the Republicans should do that to the Obama administration.

GIGOT: Mary?

O'GRADY: The problem with that strategy is that we have a very sluggish economy and, if they are seen as obstructionists, the president's going to be able to blame the failure of the economy on them. And in 2014, they're going to lose the House and then he's going to be able to go ahead with his liberal --


GIGOT: But, Mary, if the president is saying, as he is, any spending cuts have to be accompanied with more tax increases, and the Republicans don't want to vote for another tax increase because it will hurt the economy, and you agree with that, then how do we avoid gridlock?

O'GRADY: I'm not saying they shouldn't try to block them. I'm saying they shouldn't let themselves as be painted as the problem, as just sitting there trying all this have rhetoric about how the only thing they want to do is destroy the president. They have to get the facts out there in front of people to show them that this is not about them being obstructionists. This is about them trying to save the United States from becoming Greece or Argentina.


GIGOT: Well, Steve, briefly, how important is the revolt, the conservative revolt against Boehner, briefly?

MOORE: You know, there's a lot of agitation, Paul. It's not just the Republicans, those dozen or two dozen that are really angry at Boehner. They're also being prodded by these outside groups on the right.

And by the way, in some cases, I think that some of those criticisms are unfair.

But the first job I think that John Boehner has to do is reunify the party. I'll tell you this. If John Boehner agrees to any new taxes, I think this mini revolt will be a full-scaled revolt.


Thanks to all of you.

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


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

Steve, first to you.

MOORE: Shame on Chris Christie, the New Jersey governor, who ripped into the Republican Congress because they haven't approved the Sandy Disaster Relief Bill. Paul, this is a bill that's filled with pork, $60 billion. Only about a third of that money goes directly to the victims. If Chris Christie wants to blame anyone, he should blame Chuck Schumer, the Senator from New York, who put all this pork in this bill. A lot of people are going to get rich from this bill, Paul, but it's not victims from the hurricane and the storm.

GIGOT: All right, Steve.


O'GRADY: Paul, this is a miss for former Vice President Al Gore, of the party that thinks the rich should pay more in taxes, for his attempted tax dodge this week. He sold -- as part owner of Current TV, they sold to al-Jazeera. And he tried to get the deal inked before the end of the year so he could pay the 2012 rates instead of the new higher rates. That seems a little hypocritical to me.


GIGOT: OK, Mary.


HENNINGER: I have a big miss for U.S. Interior Secretary Ken Salazar, who ordered a little company called Drakes Oyster Bay (ph) to get out of Point Reyes National Park so that there would be no humans there. It would be turned into a wilderness. The problem is that Drakes Bay is the primary supplier of oysters to the restaurant in oh, so blue, San Francisco. And there are no good alternative suppliers. So between raising taxes and driving out the oyster market, I would say California is coming apart at the seams.

GIGOT: All right.

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

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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