Obama’s State of the Union: What I Heard, And What I Did Not
On a purely rhetorical level, President Obama gave a terrific State of the Union address last night. He delivered the usual laundry list of promises but packaged them in a strong framework of optimism and American exceptionalism, two themes that are proven political winners.
But we are policy wonks here at the Tax Policy Center, and from a wonk point of view, the speech was disappointing. Here is what I heard tonight, and what I did not:
What he said: The President proposed a five year freeze on some domestic discretionary spending. That is to say, a freeze on what he estimated was about 12 percent of the budget.
What he didn’t say: Very much at all about what he’d do about the big entitlement programs, such as Medicare, Medicaid, and Social Security that are swallowing most federal revenues and driving the deficit. This makes Obama the anti-Willie Sutton. He is going whether the money isn’t. Such a plan is also terribly unfair. If you benefit from those programs on the block, you may face significant pain. If you benefit from Medicare, Medicaid, Social Security, or any of the trillion dollars in tax subsidies that are exempt from the freeze, you’ll be unscathed.
What he said: We need a competitive corporate tax system with low rates and fewer tax preferences that raises the same amount of money as the current corporate tax system.
What he didn’t say: How we’d get there and–except for a passing reference to ending oil subsidies–which business tax breaks he’d repeal. What role business must play in helping reduce the deficit.
What he said: We should simplify the individual tax code.
What he didn’t say: That’d he’d take the lead in such an initiative. Instead he said merely that he would be “prepared to join” a congressional effort to restructure the individual code. This moves the nation about six inches in the direction of a serious rewrite of the tax law.
What he said: Rich people should pay higher taxes
What he didn’t say: Everybody needs to pay higher taxes
What he said: He’d veto any bill that comes to him with targeted spending earmarks and he’d send a government reorganization bill to Congress and “push to get it passed”
What he didn’t say: That he’d show the same commitment and energy when it comes to tax reform or serious deficit reduction.
Finally, a brief word about House Budget Committee Chairman Paul Ryan (R-WI). Ryan made a strong, if conventional, GOP argument for smaller, less intrusive government in his rebuttal to Obama’s address to Congress.
What he said: We should cut spending, cut spending, and cut spending.
What he didn’t say: That balancing the budget is as important as merely cutting the size of government, or that unsustainably low taxes play any role in the huge deficits whose consequences he so eloquently described. Spending cuts alone won’t set us free.
So we ended the evening pretty much where it began. Both parties vow to address the budget deficit but neither will say how. Both parties disagreed without being disagreeable. But neither is budging to narrow the policy chasm that separates them.
[...] he could lower the corporate rate and eliminate tax preferences. He raised this in last year’s state of the union address but did nothing about it. That’s too bad. With a low enough domestic tax rate, companies would [...]
What he didn’t say is more important than what he did say. Obama ignored the reinflation of the oil futures market, which if not properly regulated soon, could put Obama’s reelection at the mercy of David Koch and the energy industry. While there may be some environmentalists in the administration who welcome a rise in oil prices for their conservation and anti-warming effects – as well as those in Treasury who look the other way so that the speculators can repay the TARP loans received to date – I fear Obama is playing with fire by letting this issue fester. Pop the bubble this year and correct the futures market and any disruption will work itself out by election day. Ignore the issue and an unfriendly industry could pop the bubble in August of 2012.
As importantly, he didn’t say anything about the foreclosure crisis (which could be averted with bankruptcy reform repeal). Let’s call it what it is and what it continues to be. Until he solves that (and oil), he risks being a one term president.
Speaking of one term presidents, it is interesting how he pulled a Carter and promised government reorganization. That hasn’t been brought up in a while, at least by Democrats.
On taxes, here’s hoping that corporate tax reform and individual tax simplification are joined into one effort. There is no reason that the money raised for health care spending from income and payroll taxes can’t be taken out of the individual tax system (with disability insuance) and put into a broadened business income tax (all businesses, no matter the filing or ownership status – all value added, including payroll). If you keep the health insurance exclusion (which would now go to all employers) and shift over the child tax credit, as well as other social spending, you can greatly reduce paperwork. Employers will always have to file both their own taxes and the taxes of their employees. Ending the latter cuts their reporting by much more than half.
On the subject of innovation and competitiveness, of winning the future – most of the comparisons made on the state of US schools are apples to oranges. Not even considering demographics, the correct comparisons are to the EU as a whole rather than to its member states or to EU member states and the 50 US states. That would be much more useful in determining education policy, since some states, like Iowa, are probably better than most countries, while Mississippi and Arkansas are likely a drag on the entire country. While we can certainly learn from European two-track systems in the secondary school arena, we can learn more by comparing state to state statistics with other nations as well.
Education is not our biggest competitiveness problem – and neither is restraint of trade by China (as some commentors suggested on Salon yesterday). Capitalism itself restricts innovation as much as it encourages it – since the really great ideas are often not wanted if they upset the apple cart too much. A move to greater employee-ownership (possibly through diverting funds to it from Social Security personal retirement accounts or really encouraging concentrated Union ownership of the member workplace) with pay structures altered to reflect that could very well spur innovation more than any other factor.
Movements to unleash employee creativity ring hollow if the compensation structure does not redistribute rewards from the executive suite to the R&D department – not just by increasing budgets but by rewarding innovation after the fact (rather than by buying talent). Even deciding on innovation can be driven down – instead of reserving strategic decision making to managers, put these issues to a vote of the employee-owners. If you do that, it is impossible to justify out sized pay for the executive suite.
I seriously doubt Obama is willing to go that far outside the box, however – nor do the corporatists surrounding him.
A joint corporate/personal income tax reform as I mentioned can also be set to increase revenue in the out years to fund the demographic health care problem – although the best way to do that is to increase the Child Tax Credit to a large enough extent (replacing mortgage and state tax deductions) to encourage the best kind of base growth – more children.
[...] This post was mentioned on Twitter by Caleb Newquist. Caleb Newquist said: For the policy wonks out there – Obama’s State of the Union: What I Heard, And What I Did Not http://t.co/TlVD86H [...]
[...] problem because domestic discretionary spending is a fairly small part of the overall budget (as Howard Gleckman says: "that makes Obama the anti-Willie Sutton. He is going whether the money isn’t"). [...]
Nate is absolutely correct. If you look at the actual data, instead of listening to analysts and pundits who are ignorant about the facts you know that currently the Social Security program has projected revenue equal to or greater than expenditures, so not is it not the cause of the deficit, it is ameliorating it.
The cause of the deficit is a lack of tax revenues, due to the recession and the so-called “compromise” (so-called because Obama is the only one who compromised). AMTbuff is correct that Obama could have been a courageous leader, one who would have vetoed any tax decrease for the wealthy in the name of deficit reduction, and one who could have explained to Americans that government services, like any other services must be paid for.
Because of Republican tax policy the U. S. faces a politically unsustainable deficit of $1.5 trillion in 2011, and in a few minutes the Republicans who caused that defict will start their campaign blaming Obama and the Democrats.
If the Dems wanted to shut out cuts for the rich, they would have put reconciliation instructions in the FY 2010 budget instead of dragging out the issue in hopes of grandstanding on it – which they barely did. Indeed, they are crying all the way to the bank, since the wealthy contribute to them too.
Can you please stop saying that Social Security is a driver of our deficit because it isn’t true. By law, Social Security can’t even draw from general revenues and has a very nice trust fund. Even if that trust fund ran out, Social Security still wouldn’t be the driver of deficits because BY LAW IT CAN’T DRAW FROM GENERAL REVENUES. This whole Social Security is in crisis and contributes to the deficit is a lie. Please stop spreading it. Even when the trust fund is exhausted, the program can still pay 75% of all benefits because of the revenue it takes in. Just by that statement we can see that it doesn’t contribute to the deficit because we’re cutting benefits so that what it takes in equal what it spends. Obviously that’s not what we want. We want it to pay out 100% of promised benefits, but the deficit/debt does not have to be increased for this to happen.
That was a very accurate analysis, Howard. All the players know the score, but they are afraid to tell the public because they think we will throw a tantrum. For once I’d like a leader, someone from either party, to tell us the whole truth about the fiscal hole we are in. Any viable plan beats blithely awaiting fiscal doom.
Obama can’t be that leader because he spent all his political capital enlarging the hole with further government commitments to pay for health care, and that expansion would be the first casualty in a massive rollback of spending.
The tragedy is that Obama could have been the uniter he campaigned as if he had worked to scale back Medicare and Social Security to sustainable levels, rather than adding yet another impossible promise. Obama could have saved the government from financial ruin. He was probably the last President to have that opportunity, but it would have required governing against his political base in the interest of the country.
Totally forgettable, for reasons mentioned. The shelf life of this speech is probably Friday, although it make be getting a little moldy by Thursday. There are not specifics, because tax changes and spending cuts involve winners and losers, and politicians of all persuasion have campaigned on the platform that there are only winners.
The next big news story will be the release of the 2012 budget, and the attendant fight over whether or not to shut down the government this year, next year or 2013. The paralysis everyone expected as the outcome of the 2010 election is now scheduled for early April, give or take a couple of weeks. Good seats for the spectacle are still available.
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