Will Rick Perry's Flat Tax Gamble Pay Off?

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Rick Perry's Flat Tax Gamble

Can the GOP presidential candidate's new plan save his struggling campaign?

This is a rush transcript from "Journal Editorial Report," October 29, 2011. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," Rick Perry jumps on the tax reform band wagon. Can his plan save his struggling campaign?

Plus, the controversy over the Keystone Oil Pipeline. It's championed by unions as a job creator, but attacked by environmentalists as a climate change disaster. What's a Democratic president to do?

All of that, and the Islamist rise after the Arab Spring. Is democracy really possible in the Muslim world?

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

Texas Governor Rick Perry jumped into the GOP debate over tax reform this week, introducing a sweeping plan to overhaul the federal system, the centerpiece which is an optional flat-rate income tax of 20 percent. Only the Fox News poll has Perry sliding to fourth place in the Republican primary field. So can his proposal put him back into the top tier?

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; editorial board member, Jason Riley; and Washington columnist, Kim Strassel.

Kim, start with you. Rick Perry offered this proposal that he called bold. Do you think it's bold enough?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, it's as good a shot as he's going to have. I mean, he just looked at Herman Cain and the success of Herman Cain, and what's very clear from Mr. Cain's 9-9-9 plan is that this is where some of the real enthusiasm is out there among the voting public. And so, he's making a bet that his flat tax is simpler, more concise, easier to explain. He can tap into some of that without some of the controversy that's surrounded 9-9-9, and make a go of this after not very great debates.

GIGOT: Jason, is this a better plan politically -- let's just talk about politically for a second -- than Cain.

JASON RILEY, EDITORIAL BOARD MEMBER: Well, A flatter code is definitely preferable to what we have. It will attract more investment and more economic growth. In that sense, sure.

GIGOT: How?

RILEY: He's making it optional. He's trying to get ahead of some of the push back that he's expecting about whether to raise enough revenue, and that will be the key question here. Of course, the critics who are going after it are saying, are using these sort of static analysis that the Congressional Budget Office uses, assumes that, for instance, that the Bush tax cuts will expire, which may not happen. And it also doesn't take into effect how a flatter code, a more efficient code will incentivize economic growth. So that's where the debate will be.

(CROSSTALK)

RILEY: Will it raise enough revenue.

GIGOT: When you say static analysis, they assume there's no growth. They say you raise the rates, lower the rates and therefore adjust proportionally. and the argument for a flat tax, it will increase growth, because you'll increase -- but politically, one of the things it doesn't have, the Perry plan doesn't have is that sales tax that the 9-9-9 plan of Cain has, and that's a pretty deliberate proposal here to avoid that.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yes, that's right. On the other hand, it keeps the mortgage deduction and a number of other deductions.

GIGOT: Charitable deduction and state and local taxes, the big three, Dan.

HENNINGER: Yes. GIGOT: Those are the big three.

(LAUGHTER)

HENNINGER: So it's criticized as not being simple enough and being a kind of jobs bill for accountants.

(LAUGHTER)

But I think -- you know, you've got to step back and see what's going on here. All of these presidential candidates, these Republican presidential candidates are proposing tax reforms that include lower rates, with perhaps the exception of Mitt Romney. This is really defining the Republican Party, I think, in a very productive way against the Democrats, who clearly want to raise taxes on upper income people. This is a clear distinction. And if you think of how far we've come from Ronald Reagan, supply-side economics, all the criticism it took over the years, we've got to the point where this is now conventional wisdom inside the Republican party. Pro-growth, lower taxes and, you know, these things will go through the legislative process, no matter who gets elected.

(CROSSTALK)

HENNINGER: They're going to be changed, right? But what's important is the core idea beneath them.

GIGOT: What about this operational point. Newt Gingrich has a proposal that is a 15 percent top rate. That would be optional. What that means is you can stay with the current system and go with that or, if you choose the alternative system, the organizational flat tax system, you have to live with that and go with fewer deductions.

RILEY: Right. And voters are going to be -- need to be persuaded that the flat tax is the way to go. And what we should also note is that Steve Forbes ran on the flat tax twice and this is a certainly hyper articulate, if anything, politician. Perry is not that. And he's going to need to sell this. And he's got his work cut out.

GIGOT: Is the option a good choice? You give voters a choice. Some people say it actually complicates the system through because, voters, well, which one do I choose. I think they'll end up choosing the one at that works for them as an individual.

HENNINGER: I do. I think it's a good idea. One of the big problems with all of these plans is you're locked in. it opens you to criticism. If you don't like the flat tax, go ahead and stay with the other system. We're all for choice. Milton Friedman was for choice. Let's try it for health care after we've done it for taxes.

GIGOT: Rick Perry is running an ad in Iowa, a big buy. Let's look at it.

(BEGIN VIDEO CLIP)

PERRY: As president, I'll create at least 2.5 million new jobs. And I know something about this. In Texas, we've created over one million new jobs while the rest of the nation lost over two million. I'll start by opening American oil and gas fields. I'll eliminate President Obama's regulations that hurt other sources of domestic energy, like coal and natural gas. That will create jobs and reduce our reliance on oil on countries that hate America.

I'm Rick Perry, and I approve this message.

(END VIDEO CLIP)

GIGOT: Kim, that's a jobs ad aimed right at Iowa. It that -- and he's got a lot of money to put behind those ads. Is that the Perry strategy? He floated this week, well, I don't maybe want to participate in all the future debates. But is he going to have a big TV campaign now?

STRASSEL: He's got $17 million to throw into this. Yes, this is what he's going to do. He can't -- the debates have not been his strong point, so what you're seeing this week is him coming out with some big, bold ideas and then trying to define himself via his ads in key places like Iowa. And he's going to try to do that, telling the story he's wanted to tell since he got into the race, that is he's a job creator. That's going to inspire some criticism and pushback from the other candidates. There's going to be a lot of looking into the record in Texas. And there are some things he's going to have to explain. But that's going to be one of his strong points, yes.

GIGOT: Can he dodge the debates, Kim, or is that going to hurt his campaign if he does?

STRASSEL: I don't know if he can totally dodge them. He did make a good point. He pointed out what everybody feels, which is that the problem with a lot of the debates is that the only thing you can do is land punches on your opponent. It's not really a place where anyone can discuss big ideas. So, the candidates want -- I mean, the voters want to see the candidates out there. The question is if there isn't a better forum in some of these debates. And there are thousands coming up still.

GIGOT: Jason, quickly.

RILEY: I don't think he can dodge them. If he were the frontrunner, had a big lead, maybe, but he'd be doing this from a position of weakness. Everyone knows he's weak in the debate. I think the people want to see him articulate his views. If he can't handle the Republicans, how is he going to handle Obama in the general elections?

GIGOT: All right, Jason, last word.

When we come back, President Obama's Keystone conundrum. The proposed oil pipeline is pitting two of his core constituencies against each other. So will the administration side with labor unions or environmentalists?

(COMMERCIAL BREAK)

GIGOT: A tough political stop for President Obama as his administration nears a decision on the controversial Keystone Oil Pipeline. The proposed 1700-mile pipeline would link tar sands fields of Alberta to refineries on the Texas gulf coast. It would bring up to 830,000 barrels of oil a day to the U.S. and proponents say it will create an estimated 20,000 new construction jobs. that has unions calling on the administration to approve the deal, even as environmentalists mount a campaign to kill it. Critics of the pipeline ran this ad in the "Washington Post" and "The New York Times" this week calling this a crime in progress that only the president can stop.

We're back with Dan Henninger. And also joining us, columnist, Mary Anastasia O'Grady and Bret Stephens.

So, Mary, before we get to the politics, what are the economic merits of this pipeline?

MARY ANASTASIA O'GRADY, COLUMNIST: Well, let's start with 20,000 new jobs, probably -- just about immediately after they begin construction.

GIGOT: Shovel ready.

(LAUGHTER)

O'GRADY: And the company estimates another -- well, in total about 118,000 in direct jobs that would come just from feeding and housing all of these people who are going to work on the pipeline. You also have $7 billion of investments coming into --

(CROSSTALK)

GIGOT: Wow. $7 billion.

O'GRADY: From TransCanada.

GIGOT: All private, not government.

O'GRADY: That's TransCanada money. That's --

(CROSSTALK)

GIGOT: Private company.

O'GRADY: Right, exactly.

And there are other advantages like, now you would have oil coming from a friendly ally as opposed to depending on dictatorships to send us oil. and another key points is that, right now, a lot of the oil that goes from Canada down to a place called Cushing, Oklahoma, gets stuck there because there's no way for it to get from there to the gulf coast.

GIGOT: Right.

O'GRADY: And the gulf coast is where there are a lot of refineries that need that kind of oil. It's a very heavy -- they call it tar sand, the area where the oil comes from. So, that would also free up and have a distribution system to go down to the gulf refineries.

GIGOT: Bret, what about the political opposition, not the national environmental opposition, but on the ground, in the states that it would cross. Because these pipelines do cross territories --

(CROSSTALK)

BRET STEPHENS, FOREIGN AFFAIRS CORRESPONDENT: For instance, the governor of Nebraska is calling for -- has called a session of the legislature there to -- to consider moving it somewhat because it crosses an aquifer.

(CROSSTALK)

GIGOT: But he's not against the pipeline per se, is he?

STEPHENS: No, he's talking about moving -- moving the pipeline.

(CROSSTALK)

STEPHENS: But there's a larger question here, which is the international dimension, because the opponents of it are saying this is an environmental catastrophe, the tar sands are very carbon intensive. Jim Hansen, of NASA, says that if we approve this pipeline, it's game over for the climate.

GIGOT: He's the climate change activist, global warming activist.

STEPHENS: Exactly. What TransCanada is going to do, if this pipeline isn't approved, they will move it through Canada. After all, the company is called TransCanada. They might put it on railroads and ship it to British Columbia and send it to China or to California.

GIGOT: You're point --

(CROSSTALK)

STEPHENS: So it's not as if these things -- these tar sands aren't going to be developed if we don't develop this pipeline. They're just not going to be coming directly through the heartlands of the United States.

GIGOT: Are these pipelines safe, Mary?

O'GRADY: Yes, they're safe. It's funny, because in Nebraska, there are 1200 miles of pipeline already running through this area that -- the sacred aquifer area. The science there, the scare tactics that they're using, I don't think are really supported by science.

GIGOT: Dan, what about this political dilemma the president has? Environmentalists, on the one hand, view this as almost a religious issue. The tar sands, as Bret suggests, it's game over for climate change, versus the unions who say, we're unemployed.

HENNINGER: Yes.

GIGOT: And we need jobs.

HENNINGER: Well, the important distinction, Paul, is the private unions that say we need the jobs.

(LAUGHTER)

This is another one of these -- this is going to be such an interesting election. This is another defining issue. The opponents to this pipeline include the environmentalists, and the supporters include industrial construction unions that used to be the historic base of the Democratic Party. They've shrunk. And so the unions that have taken their place are the public sector unions. Another argument for the pipeline, it would produce private economic growth, private economic growth.

GIGOT: Sounds good. We need it.

HENNINGER: Yes, but the Democratic Party now is basically rooted in public economic growth, subsidies for public unions rather than wholly private growth. Now, these private unions, like the construction unions, have to decide whose interest, which party their interests lie with, the Democrats or the Republican Party. And I think some candidates should be putting that to them over this issue.

STEPHENS: You know, I think there's a larger issue. It's almost civilizational. Are we a country that can get things done? TransCanada put in an application for this pipeline in September of 2008. So we're now more than three years on. There's been an unbelievable review process -- the State Department, EPA, Department of Transportation, Department of the Interior.

GIGOT: All of which have found this is environmentally safe.

STEPHENS: Hundreds of pages of an environmental impact assessment by the State Department saying the environmental impact is going to be minimal. If we can't do something like this, it's a question whether we can do anything at all.

GIGOT: Mary, what do you think the president is going to decide?

O'GRADY: Actually, I just want to say, it's 10,000 pages of documents.

(LAUGHTER)

10,000 pages of documents. I think the president will approve it. I do. I think there's too much pressure on him. 9 percent unemployment, you know, the economy going nowhere, I don't think he'll be able to turn it down.

GIGOT: And hurting -- rejecting the pleas of a close ally, Canada.

Bret, what do you think briefly?

STEPHENS: This pipeline goes through states that aren't going to vote for Obama anyway. I think he turns it down.

GIGOT: And, Dan, you're --

(CROSSTALK)

HENNINGER: This is an article of faith for the president. I think he's going to turn it down.

GIGOT: I'm with Mary, hopefully.

When we come back, the Arab Spring's first election brings Islamists to power to Tunisia. Should the West be worried? We'll have a firsthand account from Sunday's vote, next.

(COMMERCIAL BREAK)

GIGOT: The Islamist Party Ennahda won a landslide in Tunisia this week in the first Democratic he election since the Arab Spring uprising.

"Wall Street Journal" editorial board member, Matthew Kaminski, was there for the vote and he joins me now with a firsthand report.

So, Matt, how free and fair were these elections?

MATTHEW KAMINSKI, EDITORIAL BOARD MEMBER: Remarkably, free and fair. It was almost -- seeing it happen, myself, I went to both very nice areas where you saw the secular Westernized, you know, upper middle class voters vote. Also went to areas where, poor area, kind of ghettos of the city which were much more conservative. The lines at voting booth -- there was one line for men and one for women. They decided themselves to divide up. These lines went about four hours back but everyone was --

(CROSSTALK)

GIGOT: Four hours back?

KAMINSKI: Four hours back but no one complained. It was sort of a national party.

GIGOT: The turnout was, what, 80 percent, 90 percent?

KAMINSKI: It was 90 percent --

GIGOT: 90.

KAMINSKI: -- of registered voters. And they even let nonregistered voters vote. So you probably saw at least three-quarters of Tunisians vote. And people were joking. It was like in the old days of Ben Ali, who was a dictator, that he could have made up these turn-out numbers.

(CROSSTALK)

GIGOT: He was the guy that deposed in January.

KAMINSKI: He was deposed in January. And this is where the whole Arab Spring started was in Tunisia.

GIGOT: A lot of scary headlines this week about Islamists coming to power. Oh, no, this is going to happen in the wake of these dictators falling. How concerned should we be about the fact that the Islamists carry the day here.

KAMINSKI: I think less concern that the alarmists would let on. This was a free vote. And during this campaign, the Islamist Party called Ennahda, which means renaissance, moderated -- very much moderated its image to fit in with what Tunisia is. I mean, they were trying to win votes and they kept -- actually, I heard this more than once -- saying we have to adjust to the Tunisia society. It's not Tunisian society that has to adjust to our views.

GIGOT: And how did they adjust to the society. And when you say moderating its views, how did they do that?

KAMINSKI: I mean, several things. One, they sort of repeated that, where they sort of made clear that, you know, in Tunisia, you have a very strong system of rights, particularly for women. So it's the Arab country that has banned polygamy. It has more or less put women at the same legal status with men. And they're obviously -- you can drink freely. You can wear whatever you want there.

GIGOT: I saw that quote. You quoted one of the Islamist leaders saying, what's the use of banning alcohol if you can still drink it at home.

KAMINSKI: Right. Exactly. And said, look it, you guys tried that --

(LAUGHTER)

KAMINSKI: -- in America, and it didn't work very well.

(LAUGHTER)

GIGOT: It didn't work out very well.

KAMINSKI: Yes.

GIGOT: So you're saying they consciously adjusted their views to accommodate these -- what are our cultural norms now in Tunisia?

KAMINSKI: Yes, well, I think there thing would be, we are Democrats, but we're also conservative Muslims. So, yes, in parliament, we will try to pass more laws that would have more of a sort of conservative tint, but we are not -- and one thing that Ghannouchi told me, he said --

(CROSSTALK)

GIGOT: He's one of the leaders.

KAMINSKI: He's the leader. He's the founder, Rachid Ghannouchi. He's the founder of Ennahda. He's 70 years old. He was an exile for 20 years. He said, in the West, there's this sort of -- people are so terrified of Sharia Law.

GIGOT: Sure.

KAMINSKI: But remember that in the Mubarak -- in Egypt, you have Sharia mentioned in the constitution as it's supposed to inspire a law. He says that Sharia comes from the grass roots up. It is not necessarily a Saudi version of Sharia. And it's something that has to come from Tunisian society itself. So some of the things they do are really not like -- because it's not our society. But, for example, in Poland, you have very harsh anti-abortion laws a lot of people don't find in the west, find it too strict. And I think some of this will come out -- the peculiarities of Tunisia will come out.

GIGOT: But here's the argument people make about the relevance to this to the rest of the Arab Spring. Tunisia is, in fact, one of the freest, most open of the Arab countries. So it's not really translatable, their experience to Egypt. What are -- do you think -- how much of this experience, which you sound very optimistic about --

KAMINSKI: Guardedly so.

GIGOT: Guardedly so. How much does it translate to the rest of the Arab Spring countries?

KAMINSKI: If you want to start anywhere, you should probably start with the easiest case, and they've done that with Tunisia. At the same time, you're seeing in Tunisia that when you have an open competition for votes in a thoroughly pluralistic and complex society, the natural process of compromise comes through, as long as no one is allowed to take over and re-impose the former authoritarianism. Both in Tunisia and in Egypt, I always found that they topple a dictator, last thing they want to do, most people want to see is a new form of dictator take over. And in Tunisia, they put in rules that would dilute the possibility that anyone party could really run that place.

GIGOT: Checks and balances.

KAMINSKI: Exactly. And this party is now reaching out to secular parties to form a new government, which the Egyptian Muslim Brotherhood hasn't done. And I'm actually much less optimistic about Egypt than Tunisia in the end.

GIGOT: All right, we'll leave it there. And we'll be following this as it goes.

Thanks, Matt.

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

(COMMERCIAL BREAK)

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

Mary, first to you.

O'GRADY: This is a hit for the mayors of Atlanta and Oakland for enforcing the law in their cities and removing the protesters who belong to something called the Occupy Wall Street movement. They, in the case of Oakland, they were on the city hall steps. They did not have a permit to be there. In the case of Atlanta, they were camping out in a park. Neither one of those things are legal. And I think that it's very helpful in running a city if there's equality under the law that's applied to everyone.

GIGOT: All right.

Jason?

RILEY: This is a miss for Democrats in Congress, who don't want the term Obamacare used in campaign mailers sent from congressional offices. They think the term is too provocative. Here, you have Democrats running from President Obama's signature achievement. Something tells me if the health care law were popular, they'd want to give the president credit.

(LAUGHTER)

GIGOT: They'd put Obamacare at the top of all the -- all the mail.

(LAUGHTER)

GIGOT: OK.

(LAUGHTER)

MATT?

KAMINSKI: On Thursday night, the European Union adopted yet another bailout package for Greece. And I think the E.U. is inventing the art of pulling teeth slowly. This is a clear miss. --

(LAUGHTER)

GIGOT: And the banks, too. They're rescuing the banks as well.

KAMINSKI: Absolutely.

(LAUGHTER)

They're rescuing the banks. The markets were relieved initially, but the already you've seen that once people see the details, they have haven't addressed the real problem, which is these countries have too much debt and they're not able to grow.

GIGOT: So another play (ph).

OK, all right.

Remember, if you have your own "Hit or Miss," please send it to us at jer@FOXnews.com. And be sure to visit us on the web at FOXnews.com/journal.

That's it for this week's edition of the "Journal Editorial Report." 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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