Jim Jordan Is the House GOP’s Next Leader / California’s Wealth Tax Fails, for Now

0:02From the opinion pages of the Wall Street Journal, this is Potomac Watch. As Speaker Mike Johnson bows out of House leadership, Louisiana's Steve Scalise and Ohio's Jim Jordan pitch Republicans for why they're the best choice to chart the GOP's path out of the political wilderness. Plus, the Supreme Court considers the powers of administrative judges. Can they hold a New Jersey orchard liable for more than a half a million dollars? Welcome, I'm Kyle Peterson with The Wall Street Journal. We're joined today by my colleagues on the WSJ's opinion pages, columnists Kim Strassel and Alicia Finley. After the GOP's drubbing in the 2026 midterms, House Republicans will soon be under new management after Speaker Mike Johnson, who stumbled into the job after the ouster of Kevin McCarthy, declined to seek the role of minority leader in the Congress next year.

1:00Let's start with Speaker Johnson explaining why on Monday. I decided not to run for a minority leader. Really the only person in the modern era that decided to stick around and serve in the Speaker Emerita position was Nancy Pelosi. And I just didn't feel, after a lot of prayer and reflection, I didn't feel like that was the best thing for me to do. We have a leadership election tomorrow, as you know, and we have two extraordinary guys that are running to lead the conference. I'm close to both of them, and we'll see how that shakes out. But I had, you know, three years, over three years now as Speaker of the House.

1:40Most of you all didn't know if I'd last three weeks, and that's okay. Nobody did. But we did it by a lot of patience and prayer and faith and with a great team. Kim, let's start with that leadership election Tuesday. It's going to happen after we are taping this. But the two men who have thrown their hat in the ring so far are Steve Scalise, number two under Speaker Mike Johnson, and Jim Jordan. Both men, prominent Republicans for years, no strangers probably to the Potomac Watch audience. But give us a sense of what they are each saying for why the post of minority leaders should go to them. Yeah, and just a quick comment before we get to the leadership race.

2:16I want to give a shout out there to Mike Johnson, who really did lead the Republican conference in the House in one of the most difficult times. But also, he's right. It used to be common. You lost an election. You were going to be in the minority. You stepped down. And it's just a healthy and honorable thing to do. And it is very different from some of the things that we have seen in recent times where no matter what scandal befalls you or what loss happens on your watch, nobody ever leaves. And Nancy Pelosi was an example of that. So I was pleased to see him do that. In terms of this race, this is a fascinating race because of a couple of reasons.

2:57One is that both of these individuals, Steve Scalise and Jim Jordan, have a lot to offer this GOP conference. So this is not a kind of, oh, gosh, terrible things just happened to us. Like, where can we scrape at the bottom of the barrel for someone who wants to run? These are both very talented individuals, and that's why it could be a pretty close thought contest. Also really important because while the GOP is going to be in the minority, this is going to be a key moment about resetting the conference and trying to position it to do well in the 2028 election. And there's a lot of work that needs to be done there.

3:34Steve Scalise's argument is, look, I am tried. I am tested. I have been doing this for years. I know you all. I know both the policy side and the politics side. I have also been through this minority rodeo before. I was in leadership back in 2018, you know, when Democrats took over. So I know how to to reset us. The other thing that he has going for him is Scalise, because he has been around for a very long time, he's got a lot of deep relationships with a lot of people that go back for quite a few years. So allies. Now, the one thing that potentially undermines him is that a lot of those allies in particular were a lot of the same moderates that just lost their jobs.

4:18So that's what's kind of working against him. What also is working against him is what Jim Jordan is arguing, which is a different take on things, which is it actually entirely because we just suffered this huge defeat. We need a break. We need a whole new approach, a whole new leader. You know, Steve Scalise was part of the team with Mike Johnson that did not really give us a plan for the next agenda and give us anything to go run on out in this election other than the bill we passed last year. I am kind of bold and definitely Jordan is known that way. But the other thing that I think, interestingly, Jim Jordan has going in his favor is that this is a guy, if you look at him, big transformation in recent years.

5:02He was really kind of one of the bomb throwers in the House when he came in, a member of the Freedom Caucus. He still is. But he has had leadership roles since then. And he has worked extremely hard to grow his relationships with all the different parts of the caucus. So he's got the Freedom Caucus endorsement, or Andy Harris, the head of the Freedom Caucus, and he's probably locked down a lot of that. And, you know, now the question will be, can he convince some of the moderate skeptics that remain in the conference that he is not going to go too far that he's got a plan. I'll second that kudos to Mike Johnson.

5:43Just remembering back to the chaotic place that the conference was in when he stepped into that speakership role, Republicans took the gavel away from Speaker Kevin McCarthy. Then there was weeks of lack of clarity as there was voting over and over and different candidates failing to get a majority. And Mike Johnson, somebody who was not a national figure before, was then thrust into the limelight as the guy who could get to 217, could get the majority to lead the Republican conference forward. Wasn't clear at that time whether he was going to be able to stay there or whether there would be another effort to oust the speaker in another leadership election.

6:23And I think he did a pretty reasonable job getting Republicans together to pass the one big beautiful bill, extend some of the 2017 Trump tax cuts and listening. It seems like he did a whole lot of listening to Republicans on various sides of issues that he probably often disagreed with to make sure that happened. While we wait for this result on who is going to lead House Republicans next year, another notable election from the midterms called out in California on Monday. That is the failure of the state's ballot initiative to impose a supposed one-time wealth tax. Alicia, what do you make of this result and how much wealth has already fled California?

7:06It seems like a lot of damage is already done. Right. So it went down and to be honest, it was somewhat narrow right now. The wealth tax is trailing by about four percentage points. But at this point, most of the ballots are in and have been counted. There are still some mail-in ballots trickling in, but not enough to actually affect the outcome of this ballot initiative. So I think the bigger message here is that wealth tax isn't even popular in deep blue state. In California, for instance, Democrats won every statewide office and most of them by more than 30 percentage points. They also added to their Democratic supermajority.

7:48So they'll have, by some estimates, 77 % of the state Senate seats and around 85 % of those in the Assembly. So this was a huge Democratic tsunami, not just nationwide, but in California. So I think it's particularly notable that the wealth tax nonetheless did go down. Now, the supporters, namely the SEIU, United Healthcare Workers West, that put the initiative on the ballot is vowing to try again. They have not conceded defeat. They say that if the legislature doesn't essentially do their bidding and do what they want, they're going to go back and try another wealth tax initiative in 2028. And the message for the billionaires and high earners is get out now while you can, because they're going to continue to push these progressive socialistic policies.

8:37My suspicion is they're going to try to get a big income tax increase through the current legislature. Again, and if failing that, they'll go to voters again in 2028, hoping for maybe a bigger democratic wave. But also they may tinker with some parts of the wealth tax initiative that caused certain constituent groups of the Democratic Party, like Planned Parenthood and the Teachers Association, to oppose it. So I think the bigger message is that while the opponents won this battle, the war is not over. One other point is that it has, as you pointed out, already caused at least seven billionaires to leave.

9:15Those are just the ones who have publicly stated that they have the moost from the state and they have about$580 billion in wealth. So you've already seen some wealth flight. This will have an impact on income tax revenue going forward. Right now, the state is kind of rolling in and swimming in revenue just because of the huge capital gain from the AI boom, but that won't go on forever. And when it ultimately stops, the state's going to be seeing huge budget deficits. And I think it's going to result in another, as I said, a big tax increase. It's not going to probably hit just the rich. They're probably going to try to go after commercial, like lift the state's property tax cap on businesses and try to broader base tax because just soaking the rich, soaking the billionaires isn't enough.

10:06They're just going to leave. And I think now the fact that the proponents of this initiative are doubling down just gives them all the more reason to do so. Hang tight. We'll be right back in a moment. This is Matthew Hennessey, the editor of Free Expression. I want to personally invite you to come check out what we're doing. Signing up for the newsletter couldn't be easier. Just go to our homepage. Directly below the Wall Street Journal logo, you'll find the magic words. Free expression, wedged between opinion and arts. There's an option to sign up for the newsletter right at the top of our section.

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11:07Welcome back. Opponents of the initiative are also doubling down. I mean, think of Gavin Newsom, California governor, who said he was opposed to this because he was worried about people fleeing California. But what he really wants is a national wealth tax, maybe when he runs in 2028 for president. But Alicia, the point that you made about the backers of this initiative saying they are simply going to try again in 2028 in California, raises a question in my mind and not a new one. Watching California over and over have these votes on lots of initiatives, sometimes conflicting initiatives. Is it too easy to get these things on the ballot in California?

11:46Do we need a ballot initiative on reforming California's ballot initiatives? Well, I think there's a couple of points here. I'm not sure it's too easy to get things onto the ballot. I think there's an argument that maybe it's too easy to pass certain tax initiatives. And there's been a push by some conservative groups, business groups to make it harder to pass tax initiatives by a referendum, for instance, raising the threshold by two thirds. The problem here is that the Democrats not just control every statewide office and legislature, they also control the Supreme Court. So they have a lot of power over what can get onto the ballot and what cannot.

12:26And I'll just go back to 2024 when business groups tried to push an initiative ballot measure that would have limited the legislature's ability to raise taxes and would have increased the threshold requiring voters to approve any tax increases by two-thirds support. And Gavin Newsom and Democratic groups went and sued to block that initiative for even getting onto the ballot. And the result was that it got kicked off. And so I think there are a couple issues. Yes, the ballot can get very crowded with initiatives. But many of these initiatives, by the way, aren't even put on the ballot by voters.

13:03They're put on the ballot by the state legislature. and the state legislature, unlike voters, can try to put the initiatives on any election. One reason the ballot this year was so crowded, a November ballot, is because the state legislature passed a law preventing citizen initiatives from going to voters in primaries, requiring them to only appear on the general election ballots. And the reason why is because they generally, in the past, there's been more conservative, relatively conservative turnout in the primaries than there is in the general election. So they viewed this as a way to ensure the defeat of measures that could restrain their ability to raise taxes.

13:41So I think the bigger problem I see in the state isn't the voters, it's the Democrats who control the state and have entrenched their power. Part of the argument for these wealth tax ideas on the left, Kim, has a political angle to it. It's that we have billionaires and they have too much and they're using that wealth and that influence to buy elections, more or less, to control our political debate. So interestingly, also, I think maybe a loss for that argument in the midterm, some reports now saying that Elon Musk spent about$220 million on Texas alone, and Republicans were wiped out in Texas.

14:20Kim, what do you make of some of the numbers on how much Republicans spent to save some of these states that they were unable to save from the voter anger. Yes, to all those Democrats out there who continue to say that billionaires own our democracy, I say, please see the results of the 2026 midterms to understand why all of your premises are entirely wrong. This, of course, has been a hobby horse of the left for a long time. I am old enough to remember when Jane Mayer, who calls herself a journalist, wrote an entire polemic demonizing the Koch brothers to try to suggest that they had bought American democracy.

14:59And of course, what it was is what it always is, is it's the left attempting to limit political speech, usually in a way that continues to advantage themselves. I would also just note this, apparently billionaires buy elections, but unions do not. And under all of their campaign finance proposals, they always have unions are allowed to continue putting forward and spending huge amounts of money on ballot initiatives like the one Alicia was just mentioning. But all of that really suffered an intellectual hit last week when Republicans just massively outspent Democrats on advertising, especially in most of the contested races.

15:40These numbers will probably change a little over time, but the initial estimates right now in Texas, the GOP spent more than$135 million more than the Democrats in Ohio,$82 million more in Maine,$37 million more in Michigan,$26 million more. None of that made any difference because at the bottom of this, money does matter. I don't want to suggest it doesn't. It is a proxy for political speech, but it is just one bit of the formula. And the much bigger aspects of that mix are issues. And the problem Republicans had this election is that they were not really running on any or at least not a forward agenda and candidates.

16:24And you see that playing out in all of those races I mentioned in Texas. Obviously, the problem was the candidate who was just Ken Paxton was a hot mess. The idea that anybody could lose by double digits on the Republican side in Texas nuts until it isn't nuts. But that's what happens when you put forward a guy who was impeached by his own Texas House, investigated by the federal government, embroiled in any number of affairs about his personal private married life. He was just a walking neon sign for potential scandal and corruption. And it was a real problem. But, you know, it was the ideas, on the other hand, that really took a toll on Susan Collins in Maine and not her own ideas, but the fact that she was tied to Donald Trump and the American public was really unhappy with some actions he'd taken and extremely frustrated that Republicans didn't have a next step agenda for what they were going to do.

17:19And she paid the price for that. So none of this is going to stop Democrats from wrapping on the money issue or trying to use it to delegitimize the Supreme Court majority that has upheld free speech via money in some of their key rulings. This was a hit to them up and down, and it kind of blows that argument out of the water. Hang tight. We'll be right back after one more break. Don't forget, you can reach the latest episode of Potomac Watch anytime. Just ask your smart speaker. Play the Opinion Potomac Watch podcast.

17:58From the Opinion pages of The Wall Street Journal, this is Potomac Watch. Welcome back. Money matters, particularly for candidates who can't raise enough of it to get their name out and be competitive. But like anything else, there are diminishing returns. And the 50th time a voter sees an ad for Ken Paxton or another candidate doesn't have the same effect as the first or second time. So candidates have to fundraise enough that they can get themselves known and get their messages out. But the billionaire money dump seems to not have been effective, at least this year. The other part about money in politics that always jumps out at me is you see figures that are trumpeted headlines about record spending on the midterms.

18:42Probably there's going to be another round of those as the FEC reports finally get tallied and counted up and added together because that is a perennial story. Some previews in the last week or so suggesting record spending on these midterms of$12 billion. But I find myself scratching my head sometimes figuring out, is that a high number? Is that a low number? I mean, I went and did some looking. Apparently, there's some news stories saying that Americans in a year spend about$13 billion on vitamins and supplements. There's one figure from a private label trade group suggesting that we spend about$13 billion a year on cookies.

19:19So I don't know, is$12 billion on an election a lot or not a lot? We have 435 federal House candidates on the ballot, 33 Senate races deciding the future of the country, war and peace, control of a$30 trillion economy. Is that more or less important than vitamin supplements and Chips Ahoy? I tend to think it's more important. Well, I just also, by the way, point out that you'd probably get some pushback against the Chips Ahoy constituents and people who like Chips Ahoy on that. Let's save a few words here also for the Supreme Court case today that is being argued, Alicia. This is called Department of Labor versus Sun Valley Orchards.

19:57Give us a sense of what the justices are tangling with here. So in this case, I think it's a perfect illustration of how government agencies can arbitrarily write and force laws. And what happened was this family farm in New Jersey, Sun Valley Orchards, was done about$550 ,000 after DOL or Labor Department officials came and reviewed all their books and looked at their family farm and said, wait a second, you guys aren't fulfilling every single aspect of these job orders, which is essentially our worker contracts. The DOL investigators found fault with the fact that the farm didn't provide these workers with kitchen access, instead provided them with homemade meals, instead added a weekly wage deduction.

20:49The farm argued that the workers were probably also better off because the weekly wage deduction was less than they would have had to spend preparing their own meals. In any case, the DOL punished or fined the farm$550 ,000 roughly. And this case went through the administrative courts, which is the typical procedure that the DOL and many other agencies, by the way, used to adjudicate charges. It was represented by the ALJ and then later an appeals board. And so Sun Valley Orchards was told Pony of$550 ,000. They actually ended up going out of business in 2021 because they couldn't afford this penalty.

21:32And they are now or they have challenged it under the Seventh Amendment, which guarantees defendants right to trial by jury in cases of common, basically cases of common law. They're also pointing out or pointing to the Supreme Court's Jarcassi decision, which was a landmark decision in 2024 that held that the SEC could not basically fine or bring enforcement actions against defenders for insider trading or securities fraud in their own administrative law courts. because, again, these are traditionally common law claims and under the Constitution that would have to be adjudicated in federal Article III courts with the option of a jury.

22:18That decision greatly limited and restricted the power of agencies to go essentially write laws and then find a defendant and say, hey, you really can't appeal or you can appeal in our own home courts, but you're going to lose anyways. And so the question is, how far does this Jarkessy decision extend? The Justice Department is arguing here that it doesn't apply to immigration-related cases because these are public rights. And now I would point out that the Supreme Court has never really clearly delineated between what are public rights and private rights. Public rights generally implicate permits, licenses, some kind of government authorizations, benefits, and such.

23:05But here, I think what's really important to underline is these aren't really like any of the above. They are actually trying to done this farm for breaking or breaching its contract with workers. And that is traditionally a common law claim. So that is really what is at stake, is whether these agencies can try to end run the Jarkessi ruling by basically saying, well, we put these conditions on programs, you violated the condition of the program, and therefore we can fine you. And if the Supreme Court were to allow that, it would completely neuter the Jarkessy decision. Or whether they can point to immigration as an exception.

23:43That's an area where the executive branch has pretty broad authority at the border. Let's listen on that point to an exchange between Justice Samuel Alito and the lawyer representing the Orchard. Could you just say succinctly how far you think the immigration exception extends in a situation where an alien is eligible for admission to the country on certain conditions? Is it your position that it stops at the point where the alien is either refused admission or granted admission based on the satisfaction at that time of the relevant conditions? Does it stop there or can it extend further to subsequent violations of the conditions?

24:35And at what point later does it end? So it can extend further if the remedy at issue is the revocation of permission to be in the country. And I think the reason for that is essentially this court, if you look at what is the difference between public and private rights, I think for the most part, the difference between public and private rights is that public rights involves the grant or denial of a benefit, which would include permission to be in the country. Private rights involve things that impose, that deal with life, liberty, and property. One thing that might help explain this difference, again, between public and private rights, let me just read a couple sentences from the brief for The Orchard.

25:17They say, while executive officials can decide whether to grant or revoke a patent, monetary liability related to patents is adjudicated in court. Likewise, although the Department of Labor can decide whether to certify employers to participate in the H-2A program, courts still must adjudicate claims for monetary liability. So Kim, we'll give you the last word. Maybe it's a bit of a fuzzy line, but the Orchard is saying in this case, essentially, there are things called private rights and public rights. But when you're at the point where the administrative agency is sending us a bill for half a million dollars, that's the kind of thing that you can't get out of doing without an Article III judge.

25:57Well, I think you can draw a straight line between the examples you just gave and the situation here. In this case, while the executive agency can make the decision on an immigration perspective about whether or not to admit or deny someone to the country, the issue at question here and what DOL is going after Sun Valley for is what the follow-on was, which was supposedly violating the subsequent contracts with their workers. And these contracts were very much with their workers. They were not with the U.S. government. And it's pretty clear a breach of a private contract is a traditional common law claim.

26:36And, you know, I think this is why the Third Circuit Court of Appeals, you know, noted in this that, and I will quote this, history does sanction non-Article 3 adjudication for certain immigration-related matters, but this case falls well outside the heartland of that tradition. So I think there's some good argument, but this is an opportunity, as Alicia said, for the court to strengthen that Jarkesi decision, which was just so important for the separation of powers. I think it would strike most Americans as just somewhat wrong for the government to say, well, in return for participating in a regulatory program that we insist that you participate in, if you want any workers, you have to surrender any fair method of disputing any of our rulings.

27:21I think that is something that most Americans would say, yeah, that's an overreach of government power. Thank you, Kim and Alicia. Thank you all for listening. You can email us at pwpodcast at wsj.com. If you like the show, please hit that subscribe button, and we'll be back tomorrow with another edition of Potomac Watch.