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A Turning Point?

The Journal Editorial Report

Paul Gigot: This week on "The Journal Editorial Report," California votes: Democratic hopes are dashed as Republicans hold on to a seat of jailed congressman Randy "Duke" Cunningham. Plus Iraq's most wanted is dead. What does the killing of Abu Musab al-Zarqawi mean for the new Iraqi government and the terrorist insurgency? And the politics of gay marriage. A constitutional ban fails in the Senate, but has the issue become the new litmus test for conservative voters? But first, these headlines.

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

A much-hyped Democratic political wave failed to form Tuesday as the GOP managed to hang on to a seat vacated by former congressman Randy "Duke" Cunningham in California's special election--this as Democratic primary voters chose state treasurer Phil Angelides as the party's candidate to challenge Gov. Arnold Schwarzenegger this November. Here with insight on the politics and economics of America's largest state is economist Arthur Laffer. He joins us from San Diego. Art, welcome to the program.

Laffer: Thank you very much, Paul. It's a pleasure to be with you.

Gigot: I've known you for years as an optimist on California. But lately you've been pretty downbeat on the political and economic trends in the state. Does the outcome of Tuesday's election make you feel any more optimistic?

Laffer: Oh, sure it does, yes. We were very fortunate to be able to defeat Proposition 82, which would have raised the income tax in California by 1.7 percentage points. And that was huge.

Gigot: That's the Rob Reiner proposition.

Laffer: The Rob Reiner proposition, and it went down in flames. You know, you still got to put it in balance. Forty percent of the people still thought it was appropriate to absolutely exploit people who have high incomes. So even though we defeated it, and it's wonderful, there still is a residual problem out there.

Angelides winning was a problem. I thought Steve Westly had a very nice proposal as a Democratic candidate for governor. He lost. But Brian Bilbray--I mean, that's the seat that you're talking about--won and won fairly handily. I think that's a wonderful thing as well.

Gigot: Well, Phil Angelides, the treasurer, has said explicitly--in fact, he started his campaign with a pledge to raise taxes. Does this mean that we're going to have, in November, a big battle over taxes between Arnold Schwarzenegger and the Democratic candidate?

Laffer: I imagine we will. But I don't think anyone will be taking the position, Paul, that we should be cutting taxes. I mean, I really hope that the governor does take that position, but I don't expect it. I think Angelides will want raise them, and the governor will oppose raising taxes, which will be fine, because I think the governor will beat Angelides. But still, I would love to see someone aggressively take the position of reforming the tax codes in California and actually cutting taxes here.

Gigot: Well, California has a top marginal rate of about, I think it's 10.3 percentage points. That is on the highest earners. And that is one of the highest rates across the country. I think you have to live in New York City to actually pay a higher rate. Is that--

Laffer: It's incredible, isn't it? It's just amazing.

Gigot: Is that the single--in your view--is that the single biggest economic problem in California?

Laffer: Well, that's one of the single biggest ones. I think the governor's--you know, when the governor came out with the State of the State address in January, I was disappointed. I mean, seriously, he swung and took the position of being pro the unions of firefighters, the teachers, the nurses. Now, we all love them individually. But as collective organizations, they really are antigrowth, anti-California.

And then the governor went for a large infrastructure spending as well. And then, to top it off, he went for an increase in the minimum wage, which as you know, Paul, is really detrimental to the poor, the minorities, the disenfranchised, whenever the economy slows down. That's what the killer is. So I was sort of disappointed the way the governor switched positions, and that's literally a long-run problem as well.

Gigot: But you know the governor. And he started 2 1/2 years ago as a reformer when he came in. He did some things on the budget, on workers' compensation. What do you think is driving him in this new direction?

Laffer: Well, I think it's politics that's driving him in the new direction. But the governor, when he came in, was great. And I love the governor personally. He is one of the finest men I have ever known, and really competent and really together. But on these issues, I just have to take exception. I think he is taking the wrong turn. And, you know, I wish he'd come back to the tax-cutting, pro-growth, free-enterprise governor that he should be. But California's politics are not friendly to that.

Gigot: Well, that may be the case. That's what he might feel that he has to do to get elected. But let's talk about the state budget, which when the governor came in was swimming in red ink, as you know. And now they have got a big new surge of revenues. I think 7 1/2 billion this year in expected revenues.

Laffer: Sure.

Gigot: Is this something he can point to, to say, Look I've turned the state around? Or is this something that you worry about being maybe temporary and we're going to be back into red ink if the economy slows?

Laffer: It's the whole volatility of revenues, Paul, that's the real problem here, because our tax system is so progressive that whenever we have a slight downturn, especially in asset values, we run huge deficits. And when we have a recovery we run huge surpluses, which leads this government to spend more and never control spending.

What we need is a low flat-rate tax here in the state of California to really keep revenues in line with the economy of California. But I don't think that's going to happen anytime soon. I don't see the political move for that. So the surge in revenues is just the counterpoint to the huge drop that Gray Davis suffered. And it's the volatility of those revenues that is really the problem of California, not whether we get a surplus this week or a deficit next week. It is the volatility that causes bad policy.

Gigot: So you're saying that an actual lower rate, top rate, flat tax rate would lead to a longer-term better budget, because you'd have kind of a steadier increase in revenues, notwithstanding what you think it would do to help the economy.

Laffer: Oh, yeah, that's exactly right. When these assemblymen and senators and governors and other people there get this huge flush of revenue, Paul, what they do is they spend it, and they build in new programs. And so then when the economy naturally comes to a downturn in revenues, which it does, they then don't cut those programs back. What they do is then try to raise taxes--i.e., the 10.3% tax rate we now face, all the little nickel-and-dime taxes all over the state. It's a travesty what the volatility of revenues has done to public policy here in California.

Gigot: OK, Art. Well, we hope somebody there is listening to you. Thanks very much for coming and joining us today.

Laffer: My pleasure, Paul. Thank you.

Gigot: When we come back, will the death of Abu Musab al-Zarqawi help stem the bloodshed in Iraq? And are there broader implications for the war on terror? Plus, the debate over gay marriage. It's the latest front in the culture war, and this week, the United States Senate weighed in. How will it affect key races this fall? Our panel tackles those topics and our "Hits and Misses" of the week when "The Journal Editorial Report" continues.

President Bush: Zarqawi is dead. But the difficult and necessary mission in Iraq continues. We can expect the terrorists and insurgents to carry on without him. We can expect the sectarian violence to continue. Yet the ideology of terror has lost one of its most visible and aggressive leaders.

Gigot: Abu Musab al-Zarqawi, the al Qaeda leader in Iraq who waged a bloody campaign of suicide bombings, kidnappings and beheadings, was killed in an air strike outside Baghdad late this week. What does this long-sought victory mean for the war in Iraq and for the broader war on terror? Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger, editorial board member Jason Riley and OpinionJournal.com columnist John Fund.

Dan, big victory. How does the government in Iraq, the Maliki government in Iraq, and President Bush--what do they do now to build on this victory?

Henninger: Well, I think we should start from the premise that what was going on in Iraq prior to this was something resembling anarchic nihilism. The situation there was really degrading--the beheadings, the bombings and so forth. And I think people were beginning to lose heart, both inside Iraq and here in the United States. Now what this does, it seems to me, is establish what we call street cred for the Maliki government. It really does give them some credibility, because the Zarqawi death stops this fall like this.

Now, I think the point now is they have to build on the credibility. And we understand that President Bush has been holding meetings to reconsider the strategy in Iraq. And I think now is the time, if they're sitting on the fence about what they should do, to build on this, take the information from those 17 raids they conducted, and go on offense. Because offense really is what the people of Iraq want. And I think it's what they need right now.

Gigot: Bernard Lewis, the great Islam scholar, said, Look, it's not whether they like us, it's whether they fear us. And this taking of Zarqawi will put some fear in the minds of people about what--

Jason Riley: It will, it will. I think there is a danger of overselling the significance of this. I mean, when we took out Saddam's sons, this was supposed to be a very big deal. When we captured Saddam himself, that was supposed to be an indication of a change in course. So today in Iraq this insurgency, I think, is being driven much more by remnants of the Baathist Party than by foreign fighters like Zarqawi. So I would be wary of overselling--

Gigot: Yeah, but I don't think the president did oversell it, Jason.

Jason Riley: No, no.

Gigot: I mean, he stepped back and said, Look, there's going to be a long fight ahead. The question is, can he now build on this to go after the Baathist insurgency? And there's risks to that, because there are going to be more casualties if we do that. It would be a combined Iraqi and U.S. operation with the British as well. But it would be a combined operation. And offensive operations are risky.

Fund: The foreign fighters are only a part of the insurgency, but they had the most sophisticated weapons and the most sophisticated targets. Now, there are two events, Paul, this week that happened. We not only had Zarqawi being killed, which I think should give Americans pause that the war certainly is going to have ups and downs, but now we're in an up phase. We also had the Canadian situation, where we had all of those terrorists caught. That should remind all Americans it has been almost five years since 9/11, and we have not had an attack on our homeland. That says something about our intelligence capabilities. It says something about how we have not had the war revisit us.

And as you know, all of us around this table personally were involved in that. The Journal offices were across the street from the World Trade Center. If you had asked any of us around this table on 9/11, do you think the U.S. homeland is going to be attacked again in the next five years, we would have all said yes. It hasn't been.

Gigot: There was a drip, drip, drip, day after day. You know, the insurgents come in, they drag schoolkids off the bus going to their final exams, and they kill. They save the Sunnis, they kill the Shiites, just for their religion. That has a demoralizing effect on people--a sense that, in Iraq and here, that this thing is being lost. Is the risk of that continuing higher than the risk of maybe going ahead and moving militarily to a clear-hold-and-build strategy that the administration did--or the military did very effectively in the town of Tal Afar last year? Can we do that in Baghdad and in other parts of Al Anbar province?

Henninger: I think we certainly have to try. I think that's what the Iraqi people want. I have started to look at the Iraqi blogs after the Zarqawi announcement and before the Zarqawi announcement. And believe you me, they were getting quite depressed about the conditions in Iraq--the conditions of life for the Iraqi people.

Now, to return to this issue of credibility, we argued at The Wall Street Journal at least a year ago that one of the biggest mistakes the United States made was not getting a government in place early. One reason for that is, as now with the Maliki government, it allows other governments to deal with an established government. And in the Zarqawi case, the Jordanians were responsible for providing some pretty significant intelligence. This allows the other governments in the region to have an Arab government that they can do business with rather than just the U.S. ambassador.

Gigot: All right, Dan. It is a big, big political opportunity here, and maybe a military one, if the Bush administration and the new government wants to take it. OK, thanks.

Still ahead, the gay marriage debate. A constitutional amendment to ban same-sex unions meets expected defeat in the Senate, but House leaders promise to revisit the issue next month. How will it shape elections this fall? Our panel weighs in when we come back.

President Bush: I call on the Congress to pass this amendment, send it to the states for ratification, so we can take this issue out of the hands of overreaching judges and put it back where it belongs, in the hands of the American people.

Gigot: Despite a strong push from President Bush, the Senate rejected a constitutional amendment to ban gay marriage this week. The proposed amendment would define marriage as the union of a man and a woman and prohibit states from recognizing same-sex weddings. Although few expected it to survive Wednesday's vote, conservatives still hope to use the measure to energize their base in the November elections in an effort that one senator warns could open a rift in society as wide as the gulf over Roe v. Wade.

We're back with Dan Henninger and Jason Riley. And also joining the panel, The Wall Street Journal's deputy Taste editor, Naomi Schaefer Riley. Naomi, welcome.

Naomi Riley: Thanks.

Gigot: Explain something to me. Family law is usually settled at the state level. Why are we debating this issue at the national level? And is that a good idea?

Naomi Riley: Well, proponents of this amendment say that it usually is settled at the state level. They just don't want Massachusetts state to settle it for the rest of the states. And I think that the issue sort of depends on how you interpret the full faith and credit clause of the Constitution. That is, do other states have to recognize gay marriages performed in Massachusetts? And there are precedents on both sides of this issue. You have Nevada quickie divorces people have to recognize in Oregon and in New Hampshire. But you also have different state laws about marriage. You can get married at one age in one state and another age in another state. And you also had polygamy in certain states for a while and not in other states. So we do have different marriage laws in different states that has a long precedent behind it.

Gigot: But there is something called the Defense of Marriage Act, which passed in the 1990s, which is a statue which bans gay marriage. Why not wait for the Supreme Court to overrule that, if indeed they will? We don't know that. And then say, OK, now we need a constitutional amendment.

Naomi Riley: That's right. And people who watch the court are really unsure of how the court would rule on the Defense of Marriage Act. But I think that the proponents of the amendment, and probably the White House too, is looking at this as kind of a pre-emptive action. And, you know, there are arguments for doing that, because I think that they probably have more popular support for this amendment now than they are going to in a few years. Even from now--between now and the last vote, you know, you had them losing senators. So maybe they should press their case now.

Gigot: But still, a long ways away from the 67 votes they need to pass a constitutional amendment, Jason. So, I mean, usually when you try something that's political, you try to show you are gaining momentum.

Jason Riley: Yeah, they got only one more vote for this this time versus the last time they took it up in '04, even though Republicans have four more senators since then. So I think the Senate is pretty much where the American people are on this. I mean, most Americans say marriage should be defined as between a man and woman. And most Americans don't think this rises to the level of adjusting the Constitution. You had senators like Judd Greg of New Hampshire come out and say, Let's let the courts decide. We have precedents on both sides. Let's let this play out before we jump in.

Gigot: Changed his vote from the last time, in 2004.

Jason Riley: Yes, he did. Yes, he did.

Henninger: Well, the idea that we're, you know, actually considering a one-size-fits-all national amendment or law for this is just politically catastrophic. This is an even more divisive issue, I think, than abortion is. And we have argued at The Wall Street Journal that this is the kind of issue that should be settled in state legislatures.

The Democrats have been trying to do it through the courts, including state courts such as that in Massachusetts. And all that does is ensure that you're going to inflame people politically across the country. And it is a perfect blue state-red state issue. If the blue states, you know, of Connecticut and Massachusetts and Vermont want same-sex marriage, go ahead.

Jason Riley: But I don't think the Democrats would be pushing this if they were running Congress right now. This is a result of Republicans having lost their way on core issues like spending and dragging out these cultural issues, like immigration and gay marriage, to try and compensate for that.

Gigot: Naomi, there's a lot of people in the cultural right who say, Look, we're going to make this a litmus test issue for Republican candidates, especially for the White House, just like we have abortion. Is there some danger in doing that, not only for Republicans, but for the Christian right itself?

Naomi Riley: I think there's a real danger in that. Because if you look at the polling, even younger evangelicals are not as supportive of this issue as they are when it comes to abortion, as year after year they lose percentage points on these polls when it comes to support of gay marriage. And so I think, you know, if the Republicans want to litmus test, I'd stick with abortion if I were them.

Gigot: Because they've been gaining some ground on that one.

Naomi Riley: They've been gaining ground. And you know, if you look at younger conservative Christian right voters, they are more supportive of an antiabortion position than their parents or grandparents were.

Gigot: Jason, we don't have a lot of time, but do you think this issue is going to matter much in November?

Jason Riley: It might work in bringing out some Christian conservatives for Bush. But those voters--

Gigot: But he's not on the ballot. You mean for Senate candidates.

Jason Riley: For Senate candidates. Oh, what did I say?

Gigot: You said for Bush.

Jason Riley: No, I think it might help Republicans. It might serve their purpose. But the collateral damage here, I think, is something that we're going to be--it's going to be around for a while on this. It's ugly.

Gigot: OK. Jason, last word. We have to take one more break. When we come back, 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, plenty of women may think they married a snake. This one actually did, Dan.

Henninger: Yeah. This is a footnote to our gay-marriage discussion. A woman in India last week married a snake. And it was done at a traditional Hindu ceremony attended by 2,000 people. Now, I would like to ask the proponents of gay marriage, which after all violates traditions going back through all of human history, to now absolutely positively guarantee that the next movement is not going to be allowing people to marry their pet horse, dog or cat. And you know what? Given the anything-goes culture we live in, I don't think they can deliver that guarantee.

Gigot: Send those cards and letters. All right, thanks, Dan. Next, a female golf phenom fails in her bid to play with the big boys. Jason?

Jason Riley: Yes, this is about Michelle Wie, the female golfer--probably the second most popular golfer, after Tiger Woods, in the country--who failed to qualify for the U.S. Open men's tournament this year. And I just wanted to make an obvious point that sports commentators seem to shy away from, which is that Michelle Wie has never won a golf tournament on the women's tour. Yet she continues to try and compete on the men's tour.

Now, I could understand someone like, maybe, Annika Sorenstam trying this. She has dominated the women's field, the women's tour, and perhaps she'd be looking for a new challenge. But Michelle Wie has yet to demonstrate she can beat other women. So why does anyone think she's ready to compete at this point in her career, albeit a very young career, with men? It just seems absurd.

Gigot: Her endorsers think that. All that free publicity. Thanks, Jason. Finally, a new exhibit at Ellis Island makes some unfavorable comparisons between American prisons and the Russian gulag, the Soviet gulag. Naomi.

Naomi Riley: Well, I think it's a hit that the museum at Ellis Island has finally drawn attention to the millions of victims of Soviet gulags, who are often forgotten when we think about genocides and things like that. Unfortunately, they've decided in their educational materials that they need to come up with modern comparisons. And so they asked students to think about comparisons with American prisoners. And students are sent home with this question: "Should prisoners in this country be forced to work jobs such as picking up trash on the highway?" I think this is an insult to the prisoners of the gulag.

Gigot: You know, Ellis Island is one of my favorite places in New York to visit, because it is so storied and wonderful history. They didn't have to do this. All right. That's it for this week's edition of "The Journal Editorial Report." Thanks to Dan Henninger, Jason Riley and Naomi Riley. I'm Paul Gigot. Thanks for watching. We hope to see you all next week.


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