Obama counting on a Pelosi Congress in 2014?

This is a rush transcript from "Journal Editorial Report," February 16, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the president lays out an activist government agenda for his second term. But does he really think it's going to pass or is this just the opening bell in the 2014 congressional campaign?

Plus, treasury nominee, Jack Lew, faces questions about his time at Citigroup, including a million dollar bonus and a Cayman Islands account. So where is the Democratic outrage?

And the Catholic Church after Pope Benedict. What the world's 1.2 billion Catholics will be looking for in their next spiritual leader.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: The American people don't expect government to solve every problem. They don't expect everybody in this chamber to agree on every issue. But they expect us to put the nation's interest before party.

(END VIDEO CLIP)

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

That was President Obama Tuesday night in his State of the Union address. Despite acknowledging that government can't solve all of our problems, he called for its vast expansion, laying out a second term agenda that includes more spending on public works, a Cap and Trade program for carbon emissions, a minimum wage increase, and a federal nursery school entitlement.

So does the president think he can get any of this passed or is he counting on a Pelosi Congress in 2014?

Let's ask Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and Washington columnist, Kim Strassel.

So, Kim, how much does the president really think he can pass or is that what this is about?

KIM STRASSEL, WASHINGTON COLUMNIST: No, he knows he can't pass his agenda. Very little of this would make it through the Republican House. That's, in fact, exactly the point. The goal here, which is a repeat of what he's done for the last two years, is to put out all of these measures, which are somewhat pole driven and sound generally good to the public, and he pitches them as helping the economy, and then when the Republicans don't pass them or take them up, he will call them obstructionist. He hopes that they'll have a few fights over a couple of them, like the minimum wage that will make them look united and ineffectual. And then he'll use that to try to show that they cannot lead and take back the House in 2014.

GIGOT: And, James, what struck me was how unapologetic the endorsement of activist government was. This is eons away from the era of "big government is over" from the Bill Clinton presidency. This is an unapologetic look, and, look, government will do the following things for you, suggests to me that he thinks he has a new liberal majority in the country?

JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Yes. And not having to run again for reelection, having just won, the pretense is falling away that he cares a lot about debt and deficit reduction. A lot of new programs, a lot of new spending. And I think, as we said, 2014, we find out if the Congress is going to be able to stop those programs in the last two years of his term.

DAN HENNINGER, COLUMNIST AND DEPUTY EDITOR: I think there's more going on here as well, Paul, than just the president sort of figuring out how to fight in the political trenches. He records himself as a historic figure. He has referred to himself in the same breath as --

(CROSSTALK)

GIGOT: The reverse Reagan.

HENNINGER: The reverse Reagan. He's referred to himself in the same league as LBJ and FDR and Lincoln or Mahatma Gandhi. He's looking toward the future, and he doesn't see that he has the liberal majority.

GIGOT: OK. But if this doesn't pass, how does he go down in history? None of it passes, say, it's all blocked, how does he go down as a historic figure, or is that already baked in the first term's achievement, Obama- care.

HENNINGER: Part is the first terms achievement and the idea he committed himself to the goals he regards as universally good, like a carbon-free world. And he thinks history in the future will look back on him and see that if they didn't achieve these things it, his aspirations made him a great man. Which the problem with that, Paul, it disconnects him from the system. In other words --

(CROSSTALK)

GIGOT: From Congress.

HENNINGER: From Congress, he's not negotiating with Congress. As soon as he did this speech, he went down to North Carolina and was talking --

(CROSSTALK)

GIGOT: But people hate Congress.

(CROSSTALK)

GIGOT: Maybe he's he thinking, OK, he'll batter them and beat them over the head. And if I don't get what I want, maybe they will break on one of two things in the next two years, the Republicans. If they don't, so what? I'll get a Congress led by Nancy Pelosi again in 2014 and then it's, Katy, bar the door.

HENNINGER: Yes. There would be no question. And I think he's just appealing to the public will, and using that campaign organization that he had. They're still in place, that he e-mails the people. It's a very usual presidency.

GIGOT: Kim, the thing most striking to me was the return of Cap and Trade --

(LAUGHTER)

-- which Democratic -- a Democrat Senate couldn't pass in 2010. Remember that? And also another tax increase on natural gas and oil drilling or production, which he wants to use to fund some of his renewable energy priorities. Why? What's his thinking there, if it couldn't pass two years ago?

STRASSEL: Two things are going on on the Cap and Trade programs. He knows it can't pass Congress. It's not going to pass Congress. And this is his excuse that he's putting out there to do what is now becoming much more common in the Obama administration, which is a robust ruse of executive power. So he said -- what it was was a challenge. He said, either pass this bill or I'm going to do this unilaterally through regulatory action. He knows that's what he's going to do anyway. But this was his excuse.

GIGOT: Right.

STRASSEL: On the tax part, on oil and gas, this a new way for him to continue funding his green energy projects. We've got a big natural gas and oil boom. And I think the administration has made the decision rather than necessarily fight that, since it's a big job creator, you try to siphon some of the money off it, and use it for your own ambitions, like war, Solyndras, more wind and solar powers, et cetera.

GIGOT: This could be a play for the second two years of his second term, not the first two, but minimum wage. Republicans are saying to $9 from 7.25. All the polls show people like it, because naturally people say -- they want everybody to make more money. And the damage from it, in terms of jobs that are never created for the low skilled, you can't see. It's not tangible.

FREEMAN: No. But economists even on the left see it. Maybe that's why it's the most appalling, despicable of the proposals. Even liberal economists know that when you raise the minimum wage, you get less employment. People will lose their jobs. That's not really debated. And of course, if $9 is great, why not raise it to $20 or $50 an hour.

GIGOT: You know what the black teenage unemployment rate?

FREEMAN: Over 30

GIGOT: 37.8 percent, which is unbelievable.

FREEMAN: It's going to hit them very hard. This is relevant, politically obviously, but the claim is that this is going to speak to our moral values. But the moral value is to let people work.

GIGOT: Kim, the other thing that may be at play here, are the red state Democrats, how -- who are going to run for reelection in 2014, for the House and Senate. They may not have that same liberal majority in their districts. How are they going to be cross-pressured by this agenda?

STRASSEL: Well, this is what Republicans need to do because, as Dan said, Obama's great strength has been disconnecting himself from this Congress. And Republicans let him do it. They have allowed themselves to be painted as the only force in town, when, in fact, it is the president who runs to the White House and the Senate. If he's going to put the agenda forward, the object should be to make the Senate go first on this, and then we'll see how many of the president's own members of his own party actually agree with some of these proposals.

GIGOT: OK, Kim, thank you.

When we come back, Jack Lew's Cayman Island investment. President Obama once called it a notorious tax scam. And Mitt Romney paid a political price for his accounts there. But will Jack Lew?

(COMMERCIAL BREAK)

GIGOT: Jack Lew, President Obama's pick for treasury secretary, faced questions on Capitol Hill this week about his tenure as a top executive at Citigroup, the too-big-to-fail bank that received a $45 billion taxpayer bailout. Members of the Senate Finance Committee pressed the former White House chief of staff about an almost $1 million bonus he took home from Citi in early 2009, as well as his investment in a venture capital fund registered in the Cayman Islands.

(BEGIN VIDEO CLIP)

UNIDENTIFIED SENATOR: Why is the investment in the Cayman Islands?

JACK LEW, TREASURY SECRETARY NOMINEE: Senator, I actually don't know why it was organized. I was not involved in setting up the fund.

UNIDENTIFIED SENATOR: Did you pay taxes on that investment?

LEW: I reported all income related to the investment on my tax forms. I paid all of my taxes.

UNIDENTIFIED SENATOR: Explain why it would be morally acceptable to take close to a million dollars out of a company that was functionally insolvent and about to receive a billion dollars of taxpayers' support.

LEW: Senator, in 2008, I was an employee in the private sector, compensated in a manner consistent with other people who did the kind of work that I did in the industry.

(END VIDEO CLIP)

GIGOT: We're back with Dan Henninger and James Freeman. And Wall Street Journal editorial board member, Mary Kissel, also joins the panel.

So, James, what did we learn about his tenure at Citigroup?

FREEMAN: Almost nothing.

(LAUGHTER)

It's amazing. He wasn't involved in that. Didn't have an opinion of that. He was running -- he was Chief operating officer. He was running two troubled divisions at Citi before and during the crisis, overseeing a lot of important stuff, the financing of these divisions, the legal, et cetera. But I think it's -- basically, from what we saw, he didn't really know or care about much of anything that's going on there. And I think --

(CROSSTALK)

GIGOT: Was this the confirmation strategy? Just do the Sergeant Schultz, "I know nothing"? He knows he's going to be confirmed.

FREEMAN: But in all of the employees at Citi had as little interest in their jobs as he apparently did, that bank could run into real trouble.

(LAUGHTER)

GIGOT: And it did.

MARY KISSEL, EDITORIAL BOARD MEMBER: There was a particularly troubling back and forth where he was asked about big banks and their funding advantages. And he didn't seem to --

(CROSSTALK)

GIGOT: Because they have an implicit government guarantee --

KISSEL: Government guarantee --

GIGOT: They often can borrow more cheaply than smaller community banks.

KISSEL: He looked rather confused.

HENNINGER: As appalling as this is, it's a piece with Chuck Hagel. They are a big deal. But the big problem is that --

GIGOT: Nominee for defense secretary.

HENNINGER: The nominee for defense. The big problem is that the president of the United States has chosen to nominate two such people into arguably the two most important cabinet positions in the country. It reflects very badly on the president.

GIGOT: But should we care about the Cayman Islands investment. It was put together for him by Citigroup, OK, so this was part of his compensation? He said to the Congress this week, look, if the Congress wanted to ban this sort of thing, it could have. So everything I did was perfectly legal. So are we just being unfair to the guy on this?

KISSEL: No. I don't really care so much about the Cayman issue. If we cared about people putting their money offshore, we'd simplify the U.S. tax structure and encourage them to bring that money back to the United States.

I think the morally questionable decision was the time at Citigroup, taking that bonus, which, by the way, was over a pretty hefty base pay salary, too, at a time when the bank was being bailed out.

GIGOT: James?

FREEMAN: Well, I think the --

(CROSSTALK)

GIGOT: The Caymans. Let's talk about the Caymans.

FREEMAN: President Obama is president today, in part, because he destroyed Mitt Romney's character largely with this attack on him as a financier who had investments in the Caymans and --

GIGOT: Shady.

FREEMAN: -- was part of the one percent. Shady guy. Suggesting that he was a tax evader or avoider, if not evader?

GIGOT: And that's Baucus.

FREEMAN: Max Baucus. We saw him asking the question.

GIGOT: The Finance Committee chairman.

FREEMAN: He has spent a career basically attacking the Cayman Islands and other tax havens.

(LAUGHTER)

And now for the president and Mr. Max Baucus to give Mr. Lew a pass. I mean, I suppose you could say now it's great news for the Caymans. They're off the hook, politically. But I think it ought to bother people that this standard that Mr. Obama has set get tossed aside when his political hack needs a job.

(CROSSTALK)

GIGOT: It exposes the phoniness of the whole Caymans issue --

FREEMAN: Absolutely.

GIGOT: as brought up and then the phony outrage of it.

Mary, what else have we learned about the -- what Jack Lew knows or thinks about taxes, finance, other things?

KISSEL: Well, he is, as Dan suggested, a "yes man." He believes in the a balanced approach to tax reform which actually --

GIGOT: That's the president's policy.

KISSEL: The president's policy, which basically means eliminating deductions, so you effectively raise taxes so you can keep government spending. He doesn't support the sequester. He wants government to keep spending in the short term. Downplayed the return to Glass-Steagall, wants to implement Dodd/Frank to the hilt.

(CROSSTALK)

KISSEL: This is effectively the president's agenda.

GIGOT: Well, but that -- why would we expect anything different? Don't we expect that of the nominee?

HENNINGER: We expect that of this president, which is to say -- usually, treasury secretaries represent the American economy. This treasury secretary is going to represent the public sector, not the entire private economy. And when he goes up there on Capitol Hill, as Mary suggests, he's going to be defending Barack Obama's public-sector agenda. And that's what his expertise is.

GIGOT: OK. But that's -- I guess that's kind of what we expect. But I guess the larger question for me would be, does he know enough about the financial industry? Does he know enough about the international economy that, if we get into trouble, he be the kind of troubleshooter or leader who --

(CROSSTALK)

HENNINGER: No, he does not.

GIGOT: -- people together. So he does not. He did not show any of that, enough of that knowledge?

KISSEL: No. He's not the guy that's going to forge the next Bretton Woods agreement.

GIGOT: Which -- yes, the currency change after World War II.

FREEMAN: It might be unprecedented. Prior to Tim Geithner, what you had is usually, either people who had great success in business or real intellectual standing. He was sort of a government plumber in the financial machinery. Now, we move from him to Jack Lew, who doesn't even have that expertise. And it's really -- it's hard to find a treasury secretary in our history that knows so little about --

(CROSSTALK)

GIGOT: Let's hope he has the speed dial of people like Paul Volcker and Robert Rubin and others --

(LAUGHTER)

-- because I think he's going to need them.

FREEMAN: Oh, he'll have Rubin's. You can be sure.

GIGOT: -- get them on at home.

(LAUGHTER)

All right, when we come back, the Catholic Church after Pope Benedict. The ailing pontiff shocked the world this week with news of his resignation. So what's next for the world's 1.2 billion Catholics?

(COMMERCIAL BREAK)

GIGOT: Pope Benedict XVI celebrated his final public mass in St. Peters Basilica on Ash Wednesday two days after his shock announcement that he would leave office on February 28th. The 85-year-old pontiff said he no longer had the strength to carry out his papal duties, becoming the first pope since the Middle Ages to resign.

So, Dan, what's Benedict's most important legacy?

HENNINGER: I think that Benedict's most important legacy was the one that he was working on as Cardinal Ratzinger, which was to make sure that Vatican II, the greatest event of the last hundred of years was properly understand --

GIGOT: The Second Vatican Council.

HENNINGER: The Second Vatican Council. At which it got to the point where it was creating a kind of "roll your own" Catholicism and people were making up whatever they thought it should be. And Ratzinger and Benedict wanted to clarify that it really was rooted in the traditions of the Catholic Church. And it was trying to bring them up to date. And I --

(CROSSTALK)

GIGOT: Engage in the modern world --

HENNINGER: Engage in the --

(CROSSTALK)

GIGOT: -- but still on traditional Catholics terms.

HENNINGER: Yes.

KISSEL: After all, this was the pope that got on Twitter the first time. It wasn't all about the past. It was also about the future. He did a lot of outreach, for example, to China's Catholics. He traveled a lot, which we didn't expect for a pope of his age. And he also started to tackle some of the more difficult scandals of the church, such as the child abuse cases.

GIGOT: So what should the church to be looking for? What do you expect the cardinals to look for in the next pope, Mary?

KISSEL: Well, I hope they look for a pope that can reinvigorate the church in the places it's really ailing, namely Europe and the United States. If you look at the top-10 Catholic countries in the world now, they include places like Brazil, the Philippines, Poland and Eastern Europe and Congo, whereas the United States, our Catholic population is about a quarter of the United States. It would be in decline if it weren't for immigrants.

GIGOT: And in Europe, the churches are essentially museums.

HENNINGER: Yes.

GIGOT: I mean, they're empty, except for the American tourists.

So what -- do they need a pope -- does the Catholic church need a pope who can identify what might be done for Catholicism in the West where it's declining, or maybe get a pope who can address where it's active and growing, and play to that strength?

HENNINGER: I think the 171 cardinals who are going to concave will have a very difficult choice, Paul. If the idea is they have to work on a pope who can protect Christians in the Middle East or in China, then they want a highly political leader, a politician as pope. On the other hand, if they want a pope who can invigorate the church in Europe, in the West, and Africa, where it's growing, then they want a strong spiritual leader. That's going to be a difficult combination for them to put together.

GIGOT: But you also made a point this week on our TV show and in our discussions that they need somebody who can also administer a Vatican bureaucracy, which doesn't often implement what pope at the top level really wants to accomplish, because it's so hide bound and insular that it can't engage with the broader world.

HENNINGER: And that's why I think they probably need a pope with political skills who can drive the bureaucracy.

GIGOT: So that would suggest somebody who's younger, more vigorous, can do more than one thing, not just a spiritual leader, Mary?

KISSEL: I was just going to say that. I think they need to look for somebody younger. And you talk about the scandals and the problems with the bureaucracy, there's a litany of them, from the child abuse cases to Vati-leaks, to the bank, the Vatican Bank, which had a lot of trouble.

I mean, personally, I'd love to see Cardinal Timothy Dolan, from New York, although, I don't think he has much of a shot for the job, unfortunately.

GIGOT: Born in the wrong country, unfortunately. They don't want a super-power cardinal to be pope necessarily.

KISSEL: But, boy, that would be fun.

GIGOT: That would be fun.

I think, focusing on the persecution of Catholics in the Muslim world and in China, is also a big part of the next pope's agenda.

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

(COMMERCIAL BREAK)

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

Kim, first to you.

STRASSEL: A miss to the Sierra Club, which, this week, for the first time in its 120-year history, officially engaged in an act of civil disobedience, protesting the Keystone Pipeline in front of the White House and getting two of its top members arrested. There was a time, Paul, when the Sierra Club was a thoughtful contributor to the debate over conservation of public lands, but they have these days adopted an environmentalism that's so extreme and so militant that there is not any room in it for the private development of the economy and jobs. I think the original founders of the Sierra Club would be appalled.

GIGOT: All right, Kim.

James?

FREEMAN: Big miss to the International Olympic Committee, Paul, for dropping wrestling.

GIGOT: This could be a weekly miss --

(CROSSTALK)

(LAUGHTER)

FREEMAN: This is the miss of the year, if not the millennium. It's dropping wrestling from the Olympic, a foundational sport, man's oldest sport, while it's keeping badminton, ping-pong, synchronized swimming. Synchronized swimming's main contribution is to create the fodder for "Saturday Night Live" skits.

(LAUGHTER)

Wrestling has been an Olympic sport for 2800 years. This is an outrage.

GIGOT: All right.

Mary?

KISSEL: I like to give a really big hit to Florida Senator Marco Rubio, who turned his sweaty, awkward swig of water during the State of the Union response, so-called Gulp-gate, into a political asset, by making fun of himself afterwards. He even posted a photo of a water bottle on Twitter, gained thousands of followers. It just goes to show that, in this age of gotcha politics and instant social media ridicule, a little humor can still go a long way.

GIGOT: All right. We'll see if it helps him along the way.

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

That's it for this week's show. Thanks to my panel and especially to all of you for watching. I'm Paul Gigot. We hope to see you right here next week.

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