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Rahm Emmanuel on Democrats' Election Hopes

The Journal Editorial Report

Paul Gigot: This week on "The Journal Editorial Report," with President Bush and the Republican-controlled Congress down in the polls, Democrats believe they have a real shot at taking back the House of Representatives. But what are their plans if they do? We'll ask Democratic Congressional Campaign Committee chair Rahm Emmanuel. Plus market jitters: Investors are on edge as a key indicator of inflation rises for the third consecutive month. Will the Fed raise interest rates yet again? First these headlines.

Gigot: Welcome to "The Journal Editorial Report." I'm Paul Gigot. Recent polls show that a host of hot-button issues, including ethics scandals, high gas prices and the war in Iraq, have weakened the Republican Party's hold on Congress. And as the midterm elections approach, Democratic leaders are attempting to capitalize, formally unveiling a plan this week that they are calling a New Direction for America. Illinois Congressman Rahm Emanuel is the chair of the Democratic Congressional Campaign Committee; he joins me now from Capitol Hill. Congressman, welcome.

Emanuel: Hey, Paul. How are you?

Gigot: Good. So let's assume you do win in November. What's the first priority--legislative priority--you're going to bring to Congress come January?

Emanuel: In the opening you mentioned the new direction. What we call it is the "Six in '06": increase in the minimum wage; direct negotiations for lower prescription drug prices; a vote on the 9/11 Commission recommendations to make America safe; take the $15 billion in corporate subsidies to big oil and put it towards energy independence; seventh, or rather fifth, is take--restore the cuts in college education, that were 12 1/2 billion dollars in cuts, and make those go back towards opening the doors of college education, and then the pay-go rules as it relates to budget, to put our fiscal house in order and put us on a path to balancing the budget--Six in '06. Those will be the six commitments, and they're all original down payments on putting our fiscal house in order and investing in the long-term economic growth of America by investing on our education, health care and technology futures that would make us more secure on the home front.

Gigot: Let's dig into one of those same areas, which is energy prices, gas prices. You talk about in the plan dealing with price gouging by--stopping price gouging by oil companies. But the Federal Trade Commission came out with a report recently that looked into the question of whether there was any gouging, and they said they couldn't find any. So what kind of behavior are you talking about here, and what specific policy are you talking about implementing?

Emanuel: Well, Paul, you know I voted against the energy bill. I know the editorial page of The Wall Street Journal was critical of that energy bill for the same reason that I voted against it. It was nothing but riddled with corporate welfare. We were subsidizing companies that were making record profits and trying to dictate things that we shouldn't be dictating. I believe, as a colleague of mine, Congressman Jay Inslee from Washington state, has what is called the Apollo project. Putting America on a path toward energy independence and cutting our dependence.

I like to call it, in summary, a hybrid-based economy, where you are supporting the moving--since cars represent close to 80% of our consumption of energy--moving those cars to more fuel efficiency and moving the market, whether it is the way the government purchases its cars, so it has a goal of moving those cars and purchases up and up for hybrids, so the price points of hybrids actually drop. If there are more people buying hybrids the price points, which is now a $6,000 disparity between a regular car and a hybrid car, would drop dramatically and making the hybrids more effective.

Working within the constraints of a market, but driving our country as a national objective towards cutting America's dependence on foreign oil. That's just one example.

Gigot: But specifically, when you're talking about gouging and the gasoline company behavior, are you talking about imposing a windfall profits tax? Do you support that on oil companies? Or price controls on gasoline?

Emanuel: No, I think, no. I think that one of the things we do support, and I will tell you, is we now are using the tax code to subsidize companies, major energy companies, who are making not only historic profits--now those profits are fine. That's their business.

Gigot: So you're against the windfall profits tax.

Emanuel: Now, let me say this. But let me get back to this, Paul. If a company--when the market share was when it was 17 bucks a barrel, 25 bucks a barrel, I can see using subsidies for big oil companies. At 70 bucks a barrel, that time the market has to take care of itself and energy companies like ExxonMobil, who is sitting on $36 billion in cash, they should make a decision whether they are going to invest and drill. We shouldn't be subsidizing it. And you are asking the taxpayers in America to pay record prices at the pump, and on April 15 also pay, and that's wrong.

Gigot: OK. Let's move to Medicare. Nearly all Democrats voted against in 2003 the Medicare drug program. But this week I saw a lot of Democrats in Congress saying you know, we encouraged seniors to sign up for that program. Are you now saying that this has been a success and this is the kind of program--you think this program is a success and you are supporting it?

Emanuel: No. I think we believe the program is fundamentally flawed. In the main area, is one of the things I mentioned in the Six in '06: direct negotiations for lower prescription drug prices. And as you probably saw, since you saw the hearing, Paul, what I believe is allow Medicare to directly negotiate for lower drug prices. Create that competition between, if you want, Humana, United, you want to pick a private plan or Medicare negotiated prices, you pick. Then you have real competition, not artificial competition only between private plans.

And let the seniors make that choice. I believe that would create the real competition that we would see. And I believe, if you look across the bar, there is many studies done. Today the taxpayers are subsidizing overpriced prescription drugs all across the market because we don't have true competition, a value you and I share in common. That's our fundamental. Second--

Gigot: Rahm, I want to get here--

Emanuel: That's OK. I will just leave it at that.

Gigot: OK. I want to talk a little bit about national security. Because you had a disagreement now between two prominent Democrats with John Kerry saying--

Emanuel: You noticed, huh?

Gigot: --you got to have a withdrawal from Iraq, a timetable, and Jack Murtha your fellow House member saying the same thing. And Sen. Clinton saying no I don't support that, that would be irresponsible. What's the formal Democratic House position? Are you calling for a withdrawal from Iraq?

Emanuel: First of all, there is differences in the Senate in the Republican Party as there are in the Democratic Party. Second, I think Democrats unite whether you see Sen. Biden's position, Sen. Levin, who are ranking in their respective areas of Foreign Affairs and Armed Services--and Jack Murtha's. I think that all what Democrats are saying, is one thing very in common: Doing more of the same and expecting a different result in Iraq is not a policy for success.

The common theme in Democrats is in 2006, Iraq sovereignty; 2007, America begins to redeploy around the region, so we have a rapid-deployment force to help Iraq. But staying there with no point on the horizon of what we are driving towards just some point, you know, they stand up, we will stand down, is not the way to manage our process now.

Gigot: Do you personally favor a set withdrawal date?

Emanuel: No. What I favor is what I just said, is 2006 is going to be be the year of Iraqi sovereignty and 2007's going to be the year of America redeployment. Now, whether that's six months, eight months--we're not going to say--or whether that's 12 months in all of 2007. I'm not going to say that, that's for the generals. But set some guidelines that have us clearly on a path.

Now remember, Paul, at this point, we are 3 1/2 years into this war, $480 billion, 2,500 American lost lives, 18,000 wounded. At the beginning of this war, what were we told? This was going to be a conventional war?

Gigot: I--

Emanuel: No, no, it turned into an insurgency. Quick, it turned into a long war. We were all told we were going to be treated as liberators, we came out--every presumption is wrong, and we are offering a different way of doing this, where we get a success.

Gigot: But we are there now and have to make a decision what we want to do, and I guess what the American people want to know is if the House Democrats are elected, are they going to call for an immediate withdrawal of American troops?

Emanuel: House Democrats are going to provide--as the Senate Democrats have--as senator both Levin and Sen. Biden, is what is a path to victory that says 2006 is the year of Iraqi sovereignty and 2007 is the year that America looks at its redeployment from Iraq into the region, so we have a rapid-deployment force that protects Iraq without being the only force there.

Gigot: OK, Congressman, you get the last word. Rahm Emanuel, thanks for being with us.

Emanuel: Thank you, Paul.

Gigot: When we come back, lower gas prices and a higher minimum wage. What's so new about the new Democratic agenda? Plus the markets are in a spin amid signs of a rebound in inflation. Is another interest rate hike inevitable? Our panel weighs in on those topics and our "Hits and Misses" of the week, when "The Journal Editorial Report" continues.

Gigot: We're back with more on the Democratic agenda in the 2006 midterm elections. Joining the panel this week, Wall Street Journal columnist and deputy editor Dan Henninger, as well as Kim Strassel and Steve Moore, both Wall Street Journal editorial board members. Kim, so you heard Rahm Emanuel. What do you think the best Democratic campaign issue is, going into November?

Strassel: Can I maybe break out a little bit and say that actually the best thing the Democrats have going for them at the moment are Republicans? And the fact that the Republicans just do not seem to be able to get together and actually come up with their own plan, whatever it might be. They are split on things like immigration. They continue to spend like crazy. And this has very much discouraged their own base and this is going to work against them.

Gigot: But is that agenda you heard, Steve, enough to keep Democratic voters fired up and maybe draw some independents?

Moore: You know, the Democrats have a big opening here on this fiscal responsibility issue. The budget is ballooning. The problem is, you look at this Democrat agenda, this New Direction for America and it is all about all of this new spending that's going to occur. And so I think a lot of Americans will say what's new about the new direction? It is more tax-and-spend; it's more regulation in the areas of minimum wage and price controls on drugs. I don't think Americans are going to find much attractive about that.

Henninger: In some ways, I think listening to Rahm Emanuel, what we are seeing is something we might call the subsidy wars. He wants to pull back subsidies for oil and gas companies and rechannel them into consumers. And essentially, that is the theme that runs through their proposals. They want subsidies for college education, for drug prices and so forth, and take away subsidies from corporations.

Gigot: The pay-as-you-go rules are also a little slippery, because as you know , Steve, those don't apply to entitlements. They don't restrain Medicare. They don't restrain Social Security. What they do restrain are tax cuts.

Moore: That's right.

Gigot: Making it much harder to cut taxes.

Moore: People need to understand is that the pay-as-you-go has become a kind of code word for raising taxes. There is one interesting idea in this agenda, which is to make college tuition costs tax-deductible. And my idea is why not make all education--elementary and secondary, for people who send their kids to private schools--why not make that tuition tax-deductible?

Gigot: That's a pretty expensive item.


Gigot: That's a big, big--

Moore: Yeah, but it would give a lot of parents choice.

Strassel: You've got to give the Democrats credit for one thing here. Which is truth in advertising. I mean, at least they have come out and said we do want to spend more. We want to make it more expensive with minimum wage for businesses to operate, we want to direct energy policy from Washington. Now, the Republicans, they claim to be for free markets and less spending, smaller government, but they have been out there spending. They have been doing pretty much the same thing with energy policy. No new drilling, no new market-based economics. And so to the extent that there are Republicans out there, at the moment whose main campaign pitch is don't elect them because they are going to be a lot worse, there's surely some voters who are thinking, Are they?

Henninger: I think you put your finger on one thing in that interview. Their best card here is general angst and unease related to the war, and they're attaching it to the Bush presidency and his polices, basically. But when you pressed, and asked whether if they came into power would they favor a pullout?, I think Rahm Emanuel fudged. And that's the one thing the American people are not going to support is an abrupt pullout. And there are members in the House, on the Democratic side, want to do that.

Gigot: The irony here is that Republicans, believe it or not, despite all the troubles in Iraq--and they're considerable--they are the ones that want to have a debate, it seems, about Iraqi policy, because they can fight the Democrats on that issue, not of what happened in 2003, not of how well the war has been prosecuted, but what do we do now for victory, because I think the American people still want victory.

Henninger: Yeah, I think that's their Achilles' heel.

Strassel: And they still trust Republicans more on national security issues. It is one reason why a lot of these new proposals don't deal with that.

Moore: The bottom line here, as you look at this agenda, and this is so far from what Republicans came up with in 1994, the Contract with America, which had very concrete proposals. These are these kind of amorphous, sound-good ideas. It really suggests to me the Democrats really don't want to tell the American people what they stand for.

Gigot: All right, Steve, you get the last word. We'll be back after this short break. Still ahead, rising energy costs push up one key indicator of inflation ahead of the Fed's meeting later this month. Do the latest numbers seal the deal for another interest rate hike? That, and our "Hits & Misses" of the week when "The Journal Editorial Report" continues.

Gigot: Concerns over rising inflation and slowing economic growth continue to rattle the markets. On Wall Street this week, stocks fluctuated in skittish trading after falling for two weeks. Investors are debating just how much inflation is going up, how high interest rates will go, and how all of this will affect housing and the overall economy.

Steve, you have been following the markets. What do you think they've been telling us about the direction of the economy?

Moore: Oh, I don't think there is any question that the inflation bogeyman is really spooking the markets. I think fundamentally, though, the real economy looks really strong to me. I mean, any time you have an economic growth rate that's higher than the unemployment rate, you've got a lot of industries doing well.

What we have to do is the Fed has to stop this drip, drip, drip approach and get the rate increases over with. Once that happens, I think the economy will expand again at a very robust rate.

Gigot: Even the housing market? We are beginning to see some declines in housing, particularly in Florida, some other places, and you saw the Realtors, one of the housing lobbies--

Moore: Sure.

Gigot:--say this week to the Fed, stop. You have to stop right now. So the political pressure on the Fed, and Ben Bernanke, is growing.

Moore: Yeah, but of course what really affects the long-term interest rates is inflationary expectations. So in a kind of perverse way, rate increases now will actually stem the inflationary expectations and bring long-term rates down, in my opinion.

Strassel: There is actually a good argument, too, that the housing market is a little bit of an anomaly at the moment, too. There is plenty of evidence that actually it was overstimulated by artificially low interest rates for a while.

Gigot: Well, we had some real run up in prices in some markets, to extraordinary, 20%, 30%.

Strassel: That's right. And so, what you are seeing now is more a correction back to normal levels. So to the extent that the housing market has always been a leading indicator of business cycles, at the moment it might not be as relevant as it has always been.

Gigot: Dan, how do you think Ben Bernanke is doing, the new Fed chairman? The markets love to haze a new Fed chairman, and they seem to be doing that.

Henninger: Well, I think he is doing better now than he was in May when he was taking kind of a soft line on inflation. But he's been talking tough lately and I think some things we've seen in the past week suggest the markets are starting to take it seriously. Earlier in the week, the price of gold and oil, and the stock market, dropped pretty precipitously. But gold and oil were the two--

Gigot: And those are forward-looking inflation indicators.

Henninger: Forward-looking inflation indicators. And I think those markets are suggesting they're taking the Fed seriously now and that they expect them to wring the remaining excess liquidity out of the system. Now, certainly if that means higher inflation--I mean, excuse me, higher interest rates--the markets are going to pull back a little bit. But that's their problem. The Fed's primary responsibility is the ongoing strength of the economy.

Moore: You know, once the markets get the sense that we've hit the top on interest rates, I think the markets are really going to take off, which reinforces my point, which is don't do, you know, these 25-point increases. Maybe do a 50-point increase and, that signals to the market we are kind of done, we've hit the top, and then the market can really explode.

Gigot: So, you are a Fed--if you are sitting at the Fed, Steve Fed Governor Moore.

Moore: Scary thought.

Gigot: Pretty scary thought--and you're saying pre-emptive strike.

Moore: Yes.

Gigot: Fifty basis points, do it now. Make sure, break the back of inflationary expectations, and then you might not have to go as high later on. Because some people have been--

Moore: Right, and then long-term rates may come down, and that may actually help the housing market in the long run.

Gigot: There is one interesting thing I want to talk about, which has happening in the economy, and that is the explosive growth of federal revenues for the last two years. I mean, they grew 15% a year ago, and this year so far they are growing at 13%. This is particularly driven by huge increase in corporate tax receipts and individual income tax receipts. Somebody must be making money to pay those taxes.

Moore: Well, where are the tax cuts for the rich? In fact, you have seen this--you are exactly right--a surge in revenues in the last two years, the highest increase in revenues in American history. And not only the federal government, but look what's happening at the states and cities. California, which just three years ago had the biggest debt of any state in the country, now has a $6 billion surplus. New York City is running a surplus for the first time in any time anyone can remember.

Gigot: But this suggests to you that there's real underlying strength to the economy. Is this evidence of a kind of strength?

Moore: Well, I think it is basically, if you look at the last two years, we've just had a very solid performance, and people pay taxes when they make more money.

Henninger: A fascinating footnote is if we had been maintaining spending growth at 3%, as in the Gingrich years, we would have a $220 billion surplus now.

Moore: It's the spending, stupid.

Gigot: Ah. If only Congress would listen. All right, thanks, Dan.

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 & Misses." It's our way of calling attention to the best and the worst of the week. Item one: Famed scientist Stephen Hawking says the end is near. But don't worry, he has a plan. Dan?

Henninger: He does have a plan. Stephen Hawking, the author of "A Brief History of Time," showed up in Hong Kong earlier this week, and said the end is near from perhaps a nuclear war, what he called sudden global warming.

Gigot: The end of the world.

Henninger: Right. And it's coming. And his suggestion is that we immediately plan to colonize the moon and Mars--which he admitted, he said, we won't find anywhere as nice as Earth unless we go to another star system. Now that's his opinion. I have seen pictures of the surface of the moon. And personally I think I'm going to stay right here on Earth and try to tough it out.

Gigot: I don't know, Dan. Where do I go to buy a ticket? Next, a hit to President Bush for his surprise visit to Iraq this week. Kim?

Strassel: Yeah, it is about time, but praise nonetheless. This comes at the end of one of the best weeks Iraq has had in a long time: formation of a government, the killing of Zarqawi. And in the past, the administration has missed some opportunities to emphasize this progress, and they decided not to make the same mistake this time. So President Bush went and made some really powerful messages: to the terrorists, that the coalition is not going to be driven out and abandon the Iraqi people; to the troops, that their commander in chief is supporting them there on the ground; and to the American people, who right now, at this point, really need all the reminders they can get about why we are involved in this enterprise. So perhaps one of the best five hours President Bush spent in his second term.

Gigot: It would have been nice if he had been able to stay overnight, but I think the Secret Service would have gone absolutely crazy at that prospect. They probably objected even to this trip. All right, thanks.

Finally, the first named storm of the season swept across Florida this week and former President Bill Clinton says it is all the Republicans' fault. Steve?

Moore: Yes, Bill Clinton gave a major address this week where he basically said that we have Republican hurricanes now, because Republicans won't do anything about global warming. Now look, I think Republicans deserve a lot of blame for things like fiscal irresponsibility--

Gigot: But not for hurricanes!

Moore: But not acts of nature! Now, I think that if they stay on this line, pretty soon you're going to have the Dick Cheney hurricanes and the, you know, George Bush tropical storms and so on. But I think the underlying point here, though, is that we shouldn't--it seemed impossible that anyone could get to the left of Al Gore on environmental loonyism, but I think that is something that Bill Clinton did this week.

Gigot: All right, Steve, thanks. That's it for this week's edition of "The Journal Editorial Report." Thanks to Dan Henninger, Kim Strassel and Steve Moore. I'm Paul Gigot. Thank you for watching. We hope to see all of you next week.

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